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Monday, 11 March, 2002, 17:47 GMT
Watchdog probes Qwest accounts
The US Securities and Exchange Commission is investigating the accounts of US telecoms company Qwest Communications.

The company admitted on Monday that the SEC last week asked it to provide documents on how it categorised certain types of revenues in its 2000 and 2001 accounts.

Some of the revenues in question were generated by selling blocks of capacity on its network to other telecoms firms, Qwest said.

Industry critics believe that some telecoms firms artificially inflated their sales figures by needlessly trading network capacity with each other - a mechanism known as as "hollow swaps."

The probe into the telecom firm comes against a background of concern about accounting practices, sparked by the collapse last year of energy giant Enron, which shared an auditor with Qwest.

Qwest cooperates

Qwest said on Monday that it planned to "respond fully" to the SEC's request.

"The SEC informed Qwest that this informal inquiry is not an indication that it or its staff believes any violation of law has occurred," the company said in a statement.

However, Qwest added that while it believes its accounts are in order, "there can be no assurance that the SEC will agree."

Earlier this month, the SEC asked Qwest to submit documents relating to its dealings with its bankrupt rival Global Crossing.

Global Crossing, which spent billions of dollars building a global fibre-optic cable network before filing for bankruptcy protection in late January, is being investigated by both the SEC and the Federal Bureau of Investigation.

Enron fall-out

Regulators were prompted to look more closely at corporate accounts by the shock collapse late last year of energy trading giant Enron, which left investors nursing heavy losses and deprived many former employees of their retirement savings.

Enron's bankruptcy followed revelations that it had hidden millions of dollars in debts in a series of complex external financial partnerships.

In the wake of the Enron affair, all companies using unconventional accounting procedures or business models - including many of the new generation of telecommunications firms which sprang up in the mid 1990s - came under renewed scrutiny.

Investors have tended to shun such companies, triggering heavy share price losses on both sides of the Atlantic.

Enron's accountants Andersen, heavily criticised for failing to spot irregularities in the energy giant's accounts, also signed off Qwest's books.

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