The New England Health Care Employees Pension Fund is suing Qwest Communications, its chairman, Joseph Nacchio, and Robin Szeliga, the firm's chief financial officer, accusing them of fraud and of engaging in insider trading.
The pension fund, which is seeking an unspecified amount in damages, claims that Qwest and its directors deliberately misled investors about the financial health of the company during the period March 22, 2001 to July 23, 2001.
According to the lawsuit, filed in the US District Court in Colorado by the law firm Milberg Weiss Bershad Hynes & Lerach on behalf of the pension fund, the defendants’ deception included false financial statements for the first quarter of 2001 and artificially inflated Qwest’s stock.
As a result of misleading financial statements, Qwest's stock traded as high as $41.83 per share, which saw Nacchio, and Szeliga sell 1,255,000 shares of their Qwest stock for $49.5m. Milberg Weiss claims that once the true extent of the company’s finances was known, the value of Qwest’s stock fell below $27.
The pension fund also claims that Qwest’s first quarter results exceeded expectations primarily due to its change in the discount rate to calculate its pension obligations, increasing its results by at least $0.03 per share. Additionally, earnings were artificially boosted by $0.01-$0.02 per share due to the firm classifying tens of millions of dollars of interest and software development costs as assets rather than expenses, which would contribute to decreased earnings in future quarters.
Colorado based Qwest is a broadband internet communications company that provides advanced communication services, data, multimedia and internet-based services on a US and global basis. The firm also provides wireless services, local telecommunications and directory services in a 14-state local service area. The company primarily serves large and mid-size businesses and government customers on a US and international basis.
By Geoffrey Ho
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