Qwest for Lockyer
From where we’re sitting, California Attorney General Bill Lockyer has always been one of the good ones. An old-school Democrat with populist leanings, he’s often proved willing to take on special interests—from tobacco companies to insurance companies and the auto industry—in defense of the public at large. That’s why we’re surprised by his lack of action with regard to the looting of the California State Teacher’s Retirement System, also known as CalSTRS, by the telecommunications company Qwest, Arthur Anderson and a host of other co-conspirators.
Sadly, the bilking of CalSTRS has an all-too-familiar ring to it these days. In much the same way that Enron scammed investors out of hundreds of millions of dollars by using deceitful accounting practices, Qwest robbed at least $100 million from the retirement accounts of 515,000 California teachers.
According to a suit brought by CalSTRS, which represents those teachers, Qwest engaged in a series of bogus transactions with three firms—Global Crossing, Calpoint and KMC Telecom—that were designed to allow Qwest to overstate revenues. Arthur Anderson’s auditors signed off on the deals, which allowed Qwest to issue glowing financial statements, giving potential investors the impression that the company was doing much better than it actually was. A host of financial firms, including Bank of America, J.P. Morgan Chase, Merrill Lynch and Lehman Brothers, then issued misleading reports on Qwest to potential investors, according to the $150 million suit.
Based on the fraudulent data, CalSTRS was suckered into making a series of large investments in Qwest from 1998 to 2001. When the tech company was forced to admit earlier this year that it had improperly accounted for $1.6 billion in revenue during the dot-com boom, its stock took a nosedive, leaving CalSTRS and its other investors holding the bag.
Qwest, Arthur Anderson and the others are now facing a civil suit in San Francisco Superior Court. They should be facing criminal charges.
When corporations break the law and swindle investors, it should not be up to those investors to hire their private attorneys to try to set things right. The state attorney general should file criminal charges. So far, however, Lockyer has declined to get involved, as has the head of the state Department of Corporations, Demetrious Boutris, who could revoke these companies’ business licenses.
We want to encourage Lockyer—and Boutris—to come down hard on these corporate pickpockets for one simple reason: Unless these companies and their executives get something more than a fine, you can bet this will happen again. Those who engage in elaborate schemes to bilk the public are nothing but white-collar criminals that should be brought to justice.