The U.S. Department of Justice has indicted four former executives of Qwest Communications, accusing them of corporate accounting fraud.

The individual named in the indictment are: Grant Graham, former chief financial officer of Qwest’s Global Business unit; Thomas Hall, former senior vice president in the Government and Educational Solutions group within the Global Business division; John Walker, former vice president of the Government and Educational Solutions group; and Bryan Treadway, formerly an assistant controller at Qwest.

The charges involve the executives’ actions surrounding a January 2001 contract from the Arizona School Facilities Board (ASFB) to design and implement a statewide school computer network.

According to the indictment, the men, recognizing that the Global Business unit would miss its Q2 2001 revenue target of $1.825 billion, arranged a “bill and hold” transaction in which they would bill ASFB for equipment that would then be held for later delivery. In conflict with Securities and Exchange Commission (SEC) regulations, they then immediately recognized the revenue from this transaction--more than $33 million--and took steps to conceal their actions.

The former executives are charged with conspiracy to commit an offense against the U.S., securities fraud, making false statements, and wire fraud affecting a financial institution. The charges carry maximum prison terms of five or ten years each and maximum fives ranging from $250,000 to $1 million.

In a prepared statement announcing the indictments, U.S. Attorney General John Ascroft stressed that such behavior is harmful to the foundations of a market economy. “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,” he said. “The success of the free market depends on a marketplace of integrity – a marketplace that operates on information of integrity.”

In conjunction with the DOJ announcement, the SEC announced that it has filed civil fraud charges against eight current and former Qwest employees, alleging that they inflated the company’s revenue by $144 million in 2000 and 2001.

The SEC indictment addresses the ASFB transaction and charges the four men indicted by the DOJ as well as two other individuals: Douglas Hutchins, a former director of the Global Business unit and Joel Arnold, former senior vice president of global business.

The SEC announcement claims the men accelerated the equipment delivery schedule and arranged for the delivery of equipment that was not approved for the ASFB project. It also accuses the men of fabricating letters of agreement with ASFB and internal memorandums that they supplied to Qwest’s auditor.

The SEC announcement also calls into question revenue generated from Qwest’s dealings with Genuity. The SEC alleges that Richard Weston, former senior vice president in product development for Qwest’s Internet Solutions unit and William Eveleth, the current chief financial officer for the company’s corporate planning and operational finance division, worked with Arnold and Graham to improperly classify one contract as two, thereby inflating Qwest’s revenue.

According to the SEC, Qwest purported to sell equipment to Genuity at an improperly inflated price. In a different contract, Qwest agreed to take a loss of services provided to Genuity, and then reassumed all risk of loss and obsolescence on the equipment purportedly sold on the first contract.

These actions, the SEC claims, allowed Qwest to improperly recognize $100 million in revenue and $80 million in earnings before interest, taxes, depreciation and amortization for the third quarter 2001.

Additionally, the SEC says Qwest recognized an additional $8 million in revenue in 2000 under a service agreement with Genuity but that Qwest had not begun providing any services.

The civil charges seek fines against the individuals charged as well as disgogrement of all “ill-gotten gains, including salaries, bonuses, stock and other compensation made during the fraudulent activities. The SEC is also seeking to have Arnold, Graham, Hall, Treadway and Weston permanently barred from serving as directors or officers of publicly held companies.

A Qwest spokesman declined to comment on the specifics of the DOJ and SEC allegations, saying it “inappropriate” to comment on ongoing investigations.

The company did, however, release a statement saying that it, “continues in its efforts to cooperate with the government in connection with the investigations.”