#02-10-03: Guilty Plea by Enaam Arnaout

REMARKS OF THE ATTORNEY GENERAL QWEST PRESS CONFERENCE February 25, 2003

(Note: The Attorney General Often Deviates From Prepared Remarks)

     Good afternoon. Last summer, President Bush created the Corporate Fraud Task Force, headed by Deputy Attorney General Larry Thompson, to oversee and direct federal law enforcement action against corporate corruption that had eroded investor confidence in the integrity of U.S. financial markets. The Task Force responded quickly.

     To date, the Department of Justice has opened more than 150 investigations into allegations of corporate fraud. The Justice Department has obtained charges against more than 200 individuals, and obtained guilty pleas or verdicts against more than 60 defendants, including convictions in high profile cases such as Enron, WorldCom and Adelphia.

     The Justice Department continues the effort to root out corporate fraud. Today in Denver, the U.S. Attorney's office has obtained a 12-count grand jury indictment charging four former executives of Qwest Communications with a conspiracy that deceived intentionally the investing public and the Securities and Exchange Commission about the true state of the company's finances. The indictment flows from an extensive investigation by the U.S. Attorney's Office for the District of Colorado, working under the oversight of the Corporate Fraud Task Force and in cooperation with the Securities and Exchange Commission, the Federal Bureau of Investigation and other Task Force members.

     Arrest warrants have been issued for the four defendants named in today's indictment. They have been given 48 hours to surrender to the Marshals Service. The four former executives charged in the indictment are:

Grant Graham, 37, of Evergreen, Colorado. Graham was the Senior Vice President for Finance of Qwest's Global Business Unit;

Thomas Hall, 51, of Englewood, Colorado. Hall was Senior Vice President in the Government and Educational Solutions Group within Qwest's Global Business Unit;

John Walker, 41, of Littleton, Colorado, a Vice President in the Government and Educational Solutions Group; and

Bryan Treadway, 37, of Atlanta, Georgia, an Assistant Controller at Qwest.

     Today's indictment charges the defendants with conspiracy, securities fraud, filing false reports with the SEC, making false statements to accountants and wire fraud. If convicted, the defendants could face up to 10 years in prison and fines of $1 million. The investigation into these and related matters is active and ongoing.

     The indictment charges that the defendants devised a scheme to recognize falsely more than $33 million dollars of additional revenue for the 2nd quarter of 2001 -- a business quarter in which Qwest was experiencing weak sales. As charged, the defendants sought to fill a gap in revenue for the company's Global Business Unit by immediately, but improperly, reporting millions of dollars from a purchase order with the Arizona School Facilities Board. The indictment also alleges that the defendants then sought to hide their fraudulent actions by falsifying documents and engaging in securities and mail fraud.

     In January 2001, Qwest entered into the purchase order with the Arizona School Facilities Board to design and implement a statewide school computer network. According to the indictment, the defendants purported to arrange for Qwest to enter into what's called a "bill and hold" transaction. The indictment alleges that the defendants violated very strict SEC requirements on such transactions by immediately and improperly recognizing the School Facilities Board revenue. As charged in the indictment, the defendants knew their transactions would meet none of the SEC's requirements, so they then filed false documents and engaged in other deceitful acts to hide their actions.

     Consistent with the Department's recently revised principles of federal prosecution of business organizations, in every case, the Department analyzes closely the cooperation of corporate management. To date, Qwest's new management has cooperated with this phase of the investigation. This is an active and ongoing investigation and we hope and expect similar cooperation as we move forward.

     In addition to today's criminal charges, our Task Force partner, the SEC, is filing a civil complaint against eight current and former Qwest officers and employees. SEC Chairman Donaldson will provide information about this action in a few moments.

     As we continue our efforts to battle corporate fraud, our message is clear: no board room is beyond the law. No executive is above the law.

     The success of the free market depends on a marketplace of integrity – a marketplace that operates on information of integrity.

     I would also like to mention some other significant steps we have taken recently in battling corporate fraud:

Again I would note, we have obtained charges against 200 individuals and obtained 60 convictions to date.

Late last year, the Deputy Attorney General directed the Bureau of Prisons to comply with federal law and stop the transfer from prisons to halfway houses of inmates who had served less than the required period of imprisonment. The reason is clear: those convicted of fraud and deceit should and will spend time in prison. The law requires no less.

The Department is also seeking to increase the sentences imposed under federal guidelines for convictions of white-collar offenses, as directed by the Sarbanes/Oxley law enacted last year.

We have moved swiftly in court, as well. The Corporate Fraud Task Force has obtained the indictment of the former Chief Financial Officer of Tyco International, Mark H. Swartz, on tax evasion charges. Energy traders at Dynegy, El Paso Corporation and Enron have been charged with filing false reports in schemes to manipulate energy prices. The former executives of the now-defunct Mercury Finance Company and Commercial Financial Services have been indicted.

Investigations continue into allegations of corporate corruption at Enron, Worldcom, Adelphia, Imclone and other companies. As these cases demonstrate, we have responded to the President's call to "usher in a new era of integrity" in business.

The Justice Department also has set up a webpage, through DOJ's main page that outlines the work of the Corporate Fraud Task Force.

     Finally, I would like to thank Larry Thompson for the outstanding leadership he's shown as head of the Corporate Fraud Task Force.

     In this case, the Corporate Fraud Task Force worked closely with the U.S. Attorney's Office for the District of Colorado -- U.S. Attorney John Suthers and First Assistant Bill Leone -- and I congratulate them. I also recognize FBI Deputy Assistant Director Joseph Lewis and the dedicated special agents of the FBI for the hard work that led to today's charges. Their investigation into Qwest continues. I also want to give special thanks to our Task Force partners, the SEC – especially Director of Enforcement Stephen Cutler and Regional Director Randall Fons for their tireless efforts to root out and eradicate corporate fraud.

     And with that, I'm especially pleased to introduce the new Chairman of the United States Securities and Exchange Commission, and member of the President's Corporate Fraud Task Force, William Donaldson.

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