The lawyer for former Qwest accountant James Kozlowski alleged in a suit filed in U.S. District Court in Denver last week that the the Securities and Exchange Commission (SEC) charged Kozlowski with fraud in March 2005 because he wouldn’t “spill the beans” on ex-chief executive Joe Nacchio. Eleven other ex-officials of the company were charged along with Kozlowski and Nacchio. Four defendants have settled, but Nacchio, Kozlowski and seven others are denying the charges, the Denver Post reports.
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Kozlowski’s attorney, Kevin Evans, requested that the judge allow him to add “abuse of process” to his client’s response to the SEC charges.
“They really tried to squeeze this low-level person to try to get him to cough up information on senior executives,” Evans said, according to the Post. “When he couldn’t, they said “Fine we’ll sue you”.
Evans also writes in the filing that a high-ranking officer of the SEC in Washington said that an accountant needed to be included in the government’s case, the Rocky Mountain News reports, “because we need to send a message to the accounting community.”
SEC officials declined to comment. SEC attorney Bob Fusfield said the government will respond in its own filing, according to the Post.
Former SEC lawyer and University of Denver law professor Jay Brown told the Post that the SEC “does not charge people they don’t have a case against. Cases have to be approved at multiple levels. What one person (in the SEC) thinks hardly matters.”
The SEC accused Nacchio, Kozlowski and the other Qwest officers of participating in a scheme to book one-time revenue from the sale or trade of capacity on fiber optic lines as recurring revenue from operations. The scheme allowed the company to book $3 billion in revenue from 1999 to 2002.
Before Kozlowski was charged in December 2004, a high-ranking SEC official told Evans that Kozlowski, who left Qwest in 2000, had made a “persuasive argument against fraud charges,” the News reports. Kozlowski has also said that he did not have the authority to set company policy and that outside auditors KPMG and Arthur Andersen “routinely and extensively reviewed” Qwest’s accounting during his employment.