SEC Demands Documents From Qwest

Securities investigators expanded their probe into the accounting at Global Crossing Ltd., serving a subpoena on rival Qwest Communications International for documents relating to deals between the two communications companies.

Qwest revealed the subpoena from the Securities and Exchange Commission on Monday, saying that the request for documents was “in connection with the SEC’s investigation of Global Crossing.”

The two companies bought and sold at least $100 million of space on each other’s fiber-optic networks in a deal that Global Crossing booked as cash revenue even though the deal produced no new cash, according to allegations made by a former Global Crossing employee.

It is common for carriers that own large communications networks to buy capacity from one another to augment their systems and serve a larger region. In the last year, however, some analysts have worried that the practice had become something of an accounting game.

A Qwest spokesman said that the Denver-based company is one of the largest purchasers of capacity on Global Crossing’s network but that all of its contracts with Global are legitimate and accounted for correctly.

“There was never a case of a phantom transaction,” said Qwest spokesman Michael Tarpey. “We believe we’ve got documentation showing specific [network] routes, with cash changing hands.... Everything is buttoned up here according to [generally accepted accounting] rules.”

Tarpey said Qwest received the subpoena Friday and would submit the requested documents to the SEC in two weeks. He said the company is not a target of the SEC probe and has not been contacted by the FBI, which has begun a separate inquiry into Global Crossing’s accounting practices, according to sources.

Roy Olofson, former finance vice president at Global Crossing, has accused the company of using faulty accounting and contrived “swaps” of capacity with other carriers to inflate revenue and mislead investors about Global Crossing’s true financial condition.

Olofson’s allegations, outlined in an Aug. 6 letter to the company’s top attorney, are at the heart of investigations by the SEC and by the FBI. Both Global Crossing and Qwest are audited by the Andersen accounting firm, but each company accounted for the transactions differently, according to Olofson’s letter.

Shares of Qwest fell 24 cents to close at $9.36 Monday on the New York Stock Exchange.

Bermuda-based Global Crossing, which has executive offices in Beverly Hills, filed for bankruptcy-law protection Jan. 28. Company executives say Olofson’s allegations are false and that the company’s accounting methods are within SEC rules.

Global Crossing also has booked capacity deals with Level 3 Communications Inc. and 360 Networks, a Canadian communications company that filed for bankruptcy protection last year. A spokeswoman for 360 Networks said the company has not received a subpoena from the SEC and has not been contacted by the FBI. Representatives at Level 3 did not respond to calls for comment.

Asia Global Crossing, a sister company to Global Crossing, said it has not received a subpoena or been contracted by the FBI. However, the subpoena served on Global Crossing late last week includes a request for contracts that involve Asia Global Crossing, spokeswoman Madelyn Smith said.

Despite strenuous denials from Global Crossing, the allegations surrounding the company, its accounting practices and the financial dealings of its politically connected executives are prompting increasing comparisons to the continuing saga at Houston-based Enron Corp.

The energy trader’s collapse revealed a quagmire of misleading accounting and self-dealing within the firm, sparking investigations by several agencies and Congress, and renewed interest in the accounting minutiae involving Global Crossing and others.

Like Enron, Global Crossing’s corporate trail includes excessive executive compensation and loans, large stock sales by top officers before the company’s bankruptcy filing and a cozy relationship with Andersen.

In a series of letters to Global Crossing in 2000, SEC officials peppered the company with questions about the way it accounted for capacity deals with other companies. The agency also questioned whether Andersen’s independence was “impaired” with the hiring of Joseph Perrone as Global Crossing’s new senior vice president of finance.

Perrone came to Global Crossing from Andersen, where he had been the audit partner for Global Crossing since the company’s inception. Ultimately, the SEC was satisfied that Andersen “met the requirements for independence,” according to Global Crossing spokeswoman Becky Yeamans.

Yeamans described the SEC questions in 2000 as “routine” correspondence between regulators and a company about to sell stock to the public.

The inquiries came as Global Crossing prepared to sell tracking stock in its GlobalCenter Internet hosting subsidiary--a plan that was aborted--and later, as Asia Global Crossing geared up for its initial public stock offering.

John Gavin, whose SEC Insight research firm scours SEC correspondence for relevant data about public companies, said he doesn’t view the Global Crossing-SEC letters in 2000 as routine.

“It’s one of the more extensive probings of a company that we’ve seen, and it shows that the SEC was very concerned about Global Crossing’s accounting and disclosure practices,” Gavin said.