Qwest's troubles attract law firms

Attorneys sign on to defend Anschutz, board

Amy Bryer

Denver Business Journal

Qwest's legal woes with shareholders and the criminal and civil probes of its operations and accounting by the federal government have been a bonanza for law firms in Denver and throughout the country.

Some of Denver's most prominent civil and criminal attorneys — many of them with extensive criminal defense experience — have been hired to represent the interests of Qwest's board members, former executives and majority owner and founder Phil Anschutz.

That's in addition to the company's in-house legal staff and law firms that have had longtime relationships with Qwest and U S West, which Qwest Communications International Inc. acquired in 2000.

Information gathered from interviews with regulators and attorneys connected in some way to the Denver company's legal worries suggest that at least seven different law firms are on the Qwest payroll in some way.

Among the players are Los Angeles-based O'Melveny and Myers; Denver-based law firms Haddon, Morgan & Foreman; Sherman & Howard; Holme Roberts & Owen; and Rothgerber, Johnson & Lyons; and Washington, D.C.-based firms Wilmer, Cutler & Pickering and Boies, Schiller & Flexner.

Although legal experts caution against drawing any conclusions from the costly "lawyering up" going on with Qwest, it does raises a question: Why would the interests of the company and individual board members or executives be different?

"Each should have their own attorney," said Carr Conway, a former Securities and Exchange Commission investigator and investigative accountant for Dickerson Financial Investigation Group. "In my experience, the board may not know all that has been done. It's against legal ethics. It's like one lawyer representing both parties in a divorce."

"You can't infer anything, the fact that different parties involved in this dispute each have separate attorneys," said Tom Russell, a University of Denver law professor. "They are just showing the appropriate level of caution."

It will be costly, however. The law firms and individual lawyers involved are among the highest priced locally.

It's been widely reported the federal government is looking for insider witnesses to help with the prosecution. That would mean more lawyers to broker testimony deals and negotiate immunity from prosecution.

As a regulated Baby Bell telephone company, Qwest has an internal team of lawyers, but it hasn't been enough to keep up with the workload provided by the lawsuits and federal investigations that have beset the company in the last year as its stock plummeted.

Qwest is the defendant in more than a dozen shareholder lawsuits, is being investigated by the SEC and is the

subject of a criminal investigation by the U.S. Attorney's Office.

Neither agency has released details of the inquiries, but it is believed the U.S. Attorney's investigation shadows the SEC's probe into Qwest's accounting practices and executives' financial benefits from stock sales.

Since Qwest's inception, Anschutz has profited by nearly $2 billion from the sale of Qwest stock sales and Nacchio has garnered about $250 million, according to financial reports.

Nacchio was asked to resign as CEO by Qwest's board of directors in June.

Some of the more notable law firms, like Los Angeles-based O'Melveny and Myers representing Qwest in the SEC investigation, come with impressive pedigrees and premium fees. Along with a bevy of former federal prosecutors, O'Melveny's ranks include former President Bill Clinton's former Secretary of State Warren Christopher.

James Lyons of Rothgerber, Johnson & Lyons was retained by the Qwest board as independent counsel to represent its interests in the numerous inquiries. Lyons is one of the city's most prominent trial lawyers and was nominated by Clinton for a federal appeals court judgeship. The nomination was scuttled by Republican Sen. Wayne Allard.

Lyons declined comment.

Washington, D.C.-based Boies, Schiller & Flexner is defending Qwest in several shareholders suits and is advising Qwest in the SEC inquiry and the congressional committee hearings. The firm specializes in securities, antitrust and trial work and has defended big names like Napster and Microsoft. Washington, D.C.-based Wilmer, Cutler & Pickering also is representing Qwest in the SEC investigation.

David Boies was counsel for the Federal Deposit Insurance Corp. in an effort to recover losses in the savings and loan scandal in 1991 to 1993. He served as counsel for the Department of Justice in the Microsoft antitrust case and was lead counsel for Vice President Al Gore in connection with the 2000 presidential voting scandal in Florida.

Both Washington firms are working with Terry Gill, of Denver-based Sherman & Howard, on the SEC investigations. Gill also is representing Qwest, Anschutz, former Qwest CEO Joe Nacchio and former chief financial officer Robin Szeliga in a shareholder lawsuit and in the SEC inquiries, according to court documents.

A recent shareholder suit against Qwest, which Gill is defending, was filed in Boulder District Court June 27, and moved to the U.S. District Court for Colorado July 31 and combined with 11 other shareholder suits. Like the others, this suit accuses Qwest of securities fraud by using false and misleading statements and "accounting trickery" to inflate the value of its stock.

Hal Haddon of Denver-based Haddon, Morgan & Foreman, is a recent addition to the defense line-up for the SEC investigation, which government sources say has enlisted about a half-dozen prosecuting attorneys. Haddon's firm was retained by Patsy Ramsey in the investigation into her daughter JonBenet's murder.

Confirming which law firms are involved in the various Qwest legal battles wasn't easy. None of the law firms wanted to talk about it — at least on the record.

For example, Denver-based Holme, Roberts & Owen — which recently issued a press release about how it advised Anschutz on an entertainment deal in London — was uncharacteristically tight-lipped about having any connection with the Qwest cases.

"It's our policy not to discuss who we're representing as clients," HRO spokeswoman Jackie Sweeney Sarlo said.

When pressed about apparent inconsistencies in that policy, Sarlo said: "Well, that's our policy today."