Alaska recovers $19 million in Qwest settlement

$13 million of total sum will be directed to permanent fund

Posted: Thursday, November 22, 2007

Alaska will receive $19 million from a settlement reached with Denver-based Qwest Communications International Inc., the Department of Law announced Wednesday.

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The money comes as compensation for losses incurred on purchases of the telecommunications firm's bonds by several state investment entities.

Of that sum, $13 million will go to the Alaska Permanent Fund Corp., which oversees fund investments that produce annual dividends to most Alaska residents. This year's check was worth $1,654.

The remaining $6 million goes to the Department of Revenue and the Alaska Retirement Management Board.

It's Alaska's third settlement in as many years with corporations whose accounting troubles have costs million to state investment funds nationwide and produced similar recovery efforts.

"From time to time those investments are impaired by securities fraud," said Senior Assistant Attorney General Michael Barnhill.

"When that happens, people of Alaska have an interest in ensuring investments get protected and recoveries are sought," he said.

A Qwest spokeswoman declined to comment on the settlement.

Qwest, which is the primary local telephone provider for 14 mostly Western states, has been mired in an accounting scandal that led to the conviction of its former Chief Executive Officer Joe Nacchio.

Nacchio was convicted of 19 counts of insider trading last spring after a jury concluded he sold $52 million worth of stock when he knew Qwest was at financial risk. Yet, he failed to tell investors. The jury also acquitted Nacchio of 23 counts.

The case grew out of a multibillion-dollar scandal that forced Qwest to restate $2.2 billion of revenue and answer to numerous shareholder lawsuits.

The various lawsuits covered securities purchased between May 24, 1999, and Feb. 14, 2002, according to the company's regulatory filings.

In Alaska's case against Qwest, the state could have participated in a class-action suit and walk away with $427,000.

But the state opted out of the class-action option, so it could seek its own claims. It never sued Qwest; rather it chose to pursue a settlement.

It started by hiring New York-based law firm Entwistle & Capucci. The firm estimated Alaska's losses in Qwest investments to be $89 million.

So while the state recovered about one-fourth of its losses, the settlement still is 45 times what it would have received had it participated in the class action suit.

"Our attorneys are excellent negotiators," Barnhill said. "Look at it in comparison to what we would have gotten if we had stayed in the class."

Two years ago, the state recovered about $14 billion in a settlement with another telecommunications firm WorldCom. Last year, it received $45 billion from AOL Time Warner.

The settlements are the product of a decision several years ago to monitor the effects of corporate accounting scandals and understand the legal options.

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