Free Answer to Amended Complaint - District Court of Colorado - Colorado

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO Case No. 01-cv-01451-REB-CBS (Consolidated With Civil Action Nos. 01-cv-1472-REB-CBS, 01-cv-01527-REB-CBS, 01-cv-1616-REB-CBS, 01--cv-01799-REB-CBS, 01-cv-01930-REB-CBS, 01-cv-02083-REB-CBS, 02-cv-00333-REB-CBS, 02-cv-00374-REB-CBS, 02-cv-00507-REB-CBS, 02-cv-00658-REB-CBS, 02-cv-00755-REB-CBS, 02-cv-00798-REB-CBS, and 04-cv-00238-REB-CBS) In Re QWEST COMMUNICATIONS INTERNATIONAL, INC. SECURITIES LITIGATION This document relates to: STICHTING PENSIOENFONDS ABP V. QWEST COMMUNICATIONS INTERNATIONAL INC., et al., Case No. 04-cv-00238-REB-CBS DEFENDANT DRAKE S. TEMPEST'S ANSWER TO PLAINTIFF STICHTING PENSIOENFONDS, ABP'S FIRST AMENDED COMPLAINT Defendant Drake S. Tempest ("Tempest"), respectfully submits the following Answer to Plaintiff's First Amended Complaint (the "Complaint"): PRELIMINARY STATEMENT The Complaint consists of numerous allegations, spanning several years, many of which are directed at Qwest Communications International Inc. ("Qwest"), Citigroup Global Markets, Inc., Arthur Andersen, and other Individual Defendants. Many allegations are poorly defined and only generally dated, or are lifted from various sources without attribution. Further, several of the allegations contain material that Plaintiff has either misquoted or, worse, altered, without informing the Court that it has done so. As a result, it is difficult to understand many of the allegations in the Complaint with sufficient clarify to permit a precise answer. Although

Tempest has attempted to identify and respond to specific allegations in cases where they can be understood sufficiently to permit an answer, he does not understand the exact nature of

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Plaintiff's allegations in several instances. In addition, for documents that Plaintiff does cite, Tempest respectfully refers the Court to the full document for a complete understanding of its content, while noting that many of the documents Plaintiff cites constitute inadmissible hearsay and do not offer competent evidence of any of the purported statements of fact they may contain. In addition to its numbered paragraphs, the Complaint contains an opening statement and various headings. No response is required to these conclusory statements. To the extent a response is required, Tempest specifically denies the truth of each statement in the opening statement, as well as each statement contained in the headings. Finally, all allegations that are not expressly admitted are denied, and Tempest reserves the right to withdraw, amend, or modify his Answer to the Complaint as later circumstances may warrant. ANSWER I. SUMMARY OF CLAIMS 1. 2. 3. a response. Tempest denies the allegations in paragraph 1. Tempest adopts and incorporates by reference Qwest's Answer to paragraph 2. The allegations in paragraph 3 are directed at other Defendants and do not require To the extent that a response is deemed necessary, Tempest lacks sufficient

knowledge or information to admit or deny the allegations in paragraph 3, and therefore denies them. 4. 5. Tempest denies the allegations in paragraph 4. Tempest admits that the restatement in Qwest's Form 10-K, filed October 16,

2o005, contains various adjustments for fiscal years 2000 and 2001. That document speaks for

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itself, and Tempest respectfully refers the Court to the full document for a complete understanding of its contents. Tempest denies all other allegations in paragraph 5. 6. 7. II. Tempest denies the allegations in paragraph 6. Tempest denies the allegations in paragraph 7.

THE PARTIES A. 8. Plaintiff Tempest lacks sufficient knowledge or information to admit or deny the

allegations in paragraph 8, and therefore denies them. 9. Tempest denies that Plaintiff purchased Qwest stock at inflated prices. Tempest

lacks sufficient knowledge or information to admit or deny any remaining allegations in paragraph 9, and therefore denies them. 10. Tempest lacks sufficient knowledge or information to admit or deny the

allegations in paragraph 10 concerning the number of shares of Qwest stock that Plaintiff purportedly purchased, and therefore denies those allegations. Tempest denies any remaining allegations in paragraph 10. B. Defendants 1. 11. 12. 13. Qwest

Tempest admits the allegations in paragraph 11. Tempest denies the allegations in paragraph 12. Tempest admits that, at certain times in the past, Qwest provided

communications, data, multimedia, and internet-based services on a national and international basis and wireless services, local telecommunications and related services, and directory services

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in a 14-state local service area. To the extent that the allegations in paragraph 13 are intended to describe the nature of Qwest's current business, Tempest lacks sufficient knowledge or information to admit or deny the allegations and therefore denies them. Tempest denies any remaining allegations in paragraph 13. 14. Tempest admits that Anschutz was one of Qwest's founders. Tempest lacks

sufficient knowledge or information to admit or deny any remaining allegations in paragraph 14, and therefore denies them. 15. Tempest admits that the merger between Qwest and U.S. West, Inc. was

consummated on June 30, 2000, and that the merger was accounted for as a reverse acquisition under the purchase method of accounting. paragraph 15. 2. Individual Defendants a. 16. Board of Directors Tempest denies any remaining allegations in

Tempest admits that Anschutz formerly served as the non-executive co-chairman

of the Qwest Board of Directors, that on information and belief, he currently serves as a member of the Qwest Board, and that he was one of Qwest's founders. Tempest admits that the Anschutz Company sold shares of Qwest common stock to BellSouth Corporation in May 1999. Tempest lacks sufficient knowledge or information to admit or deny any remaining allegations in paragraph 16, and therefore denies them. 17. Tempest lacks sufficient information or knowledge to admit or deny the

allegations in paragraph 17, and therefore denies them.

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18.

Tempest lacks sufficient information or knowledge to admit or deny the

allegations in paragraph 18, and therefore denies them. 19. Tempest admits that Craig D. Slater served on Qwest's Board of Directors.

Tempest admits that Mr. Slater serves as President of the Anschutz Investment Company and as an Executive Vice President of the Anschutz Company and the Anschutz Corporation. Tempest lacks sufficient information or knowledge to admit or deny any remaining allegations in paragraph 19, and therefore denies them. 20. Tempest admits that Defendant Jordan Haines served on Qwest's Board of

Directors from 1997 to 2004 and that he was a member of the Board's Audit Committee during 2000 and 2001. Tempest lacks sufficient information or knowledge to admit or deny any remaining allegations in paragraph 20, and therefore denies them. 21. Tempest admits that Defendant Thomas Stephens served on Qwest's Board of

Directors from 1997 to 2004 and that Mr. Stephens was Chairman of the Board's Audit Committee between 2000 and 2001. Tempest lacks sufficient knowledge or information to admit or deny any remaining allegations in paragraph 21, and therefore denies them. 22. Tempest admits that Defendant Linda Alvarado served as a member of Qwest's

Board of Directors after the completion of Qwest's merger with U.S. West, Inc. on June 30, 2000, and that Ms. Alvarado was a member of the Board's Audit Committee during 2000 and 2001. Tempest lacks sufficient knowledge or information to admit or deny any remaining allegations in paragraph 22, and therefore denies them. 23. Tempest admits that Defendant Peter Hellman served as a member of Qwest's

Board of Directors after the completion of Qwest's merger with U.S. West, Inc. on June 30,

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2000, and that Mr. Hellman was a member of the Board's Audit Committee during 2000 and 2001. Tempest admits that the United States House of Representatives Committee on Energy and Commerce held hearings on September 24 and October 1, 2002 entitled "Capacity Swaps by Global Crossing and Qwest: Sham Transactions Designed to Boost Revenues?" Tempest admits that Mr. Hellman testified during the hearings. The testimony speaks for itself. Tempest respectfully refers the Court to the full transcript for a complete understanding of the content of Mr. Hellman's testimony. Tempest lacks sufficient knowledge or information to admit or deny any remaining allegations in paragraph 23, and therefore denies them. b. 24. Senior Management

Tempest admits that Defendant Joseph P. Nacchio served as Qwest's President

and Chief Executive Officer from January 1997 to February 1999 and the Chief Executive Officer and Co-Chairman from February 1999 until his resignation on June 16, 2002. Tempest further admits that the Qwest Board of Directors awarded Mr. Nacchio a one-time cash bonus of $750,000 in recognition of the increased responsibilities he undertook following the merger between Qwest and U.S. West, Inc. Tempest lacks sufficient knowledge or information to admit or deny any remaining allegations in paragraph 24, and therefore denies them. 25. Tempest admits that Defendant Afshin Mohebbi served in several capacities at

Qwest from May 1999 until his resignation in December 2002. Mr. Mohebbi became the President and Chief Operating Officer of Qwest on May 20, 1999, a position that he continued to hold until the completion of Qwest's merger with U.S. West, Inc. on June 30, 2000. Tempest admits that Mr. Mohebbi served as Qwest's President of Worldwide Network Services and Operations from June 30, 2000, and as President and Chief Operating Officer from April 18,

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2001 until December 2002.

Tempest further admits that the United States House of

Representatives Committee on Energy and Commerce held hearings on September 24 and October 1, 2002 entitled "Capacity Swaps by Global Crossing and Qwest: Sham Transactions Designed to Boost Revenues?," and that Mr. Mohebbi testified at those hearings. Tempest respectfully refers the Court to the full transcript of Mr. Mohebbi's testimony for a complete understanding of its contents. Tempest lacks sufficient knowledge or information to admit or deny any remaining allegations in paragraph 25, and therefore denies them. 26. Tempest admits that Defendant Robin R. Szeliga served as Qwest's Vice

President of Finance from August 1998 to October 1999 and as Senior Vice President of Finance from October 1999 to March 2001. Tempest admits that Ms. Szeliga served as Qwest's interim Chief Financial Officer from March 2, 2001 until her April 18, 2001 appointment as Executive Vice President, Finance and Chief Financial Officer. Tempest admits that Ms. Szeliga served in that capacity until July 2002, when Oren G. Shaffer became Vice Chairman and Chief Financial Officer. Ms. Szeliga served as Executive Vice President from July 2002 until August 2003, when she left the company. Tempest lacks sufficient knowledge or information to admit or deny any remaining allegations in paragraph 26, and therefore denies them. 27. Tempest admits that Defendant Robert S. Woodruff served as Qwest's Chief

Financial Officer from August 1994 until March 2, 2001. Tempest lacks sufficient knowledge or information to admit or deny any remaining allegations in paragraph 27, and therefore denies them. 28. Tempest admits that he served as Qwest's Executive Vice President, General

Counsel, and Corporate Secretary from October 1998, and Chief Administrative Officer from

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June 2000, until his resignation on December 8, 2002. Tempest admits that between November 1999 and January 2001, he sold approximately 466,600 shares of Qwest stock for gross proceeds, although not profits, of approximately $20,876,780. Tempest admits that he resigned effective December 8, 2002 and received severance which is described in Qwest SEC filings. Tempest admits that, while at Qwest, he properly made investments in certain companies that did business with Qwest. Tempest denies any remaining allegations in paragraph 28. 29. Tempest admits that Defendant James A. Smith served as Qwest's Executive Vice

President, Small Business and Consumer Markets, from January 2001 until April 2001, and as Executive Vice President, National Consumer Markets from April 2001 until July 2002. Tempest lacks sufficient knowledge or information to admit or deny any remaining allegations in paragraph 29, and therefore denies them. 30. Tempest admits that, in the wake of Qwest's merger with U.S. West, Inc.,

Defendant Gregory Casey served as Executive Vice President, Wholesale Markets. Tempest further admits that, for some portion of his employment, Mr. Casey reported to Mr. Mohebbi. Tempest admits that the United States House of Representatives Committee on Energy and Commerce held hearings on September 24 and October 1, 2002 entitled "Capacity Swaps by Global Crossing and Qwest: Sham Transactions Designed to Boost Revenues?," and that, that according to the transcript of the hearings, Mr. Casey invoked his Fifth Amendment privilege during the hearings. Tempest lacks sufficient knowledge or information to admit or deny any remaining allegations in paragraph 30, and therefore denies them. 31. No response to this paragraph is required.

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32.

Insofar as the allegations in paragraph 32 are directed at him, Tempest admits that

at certain times during his employment he had access to non-public information about Qwest's business. Insofar as the allegations in paragraph 32 are directed at other Defendants, Tempest lacks sufficient knowledge or information to admit or deny them and therefore denies them. Except as expressly admitted, Tempest denies any remaining allegations in paragraph 32. 33. The first sentence of paragraph 33 states a legal conclusion as to which no

response is necessary. To the extent that a response is required, Tempest denies the allegations in the first sentence of paragraph 33. With respect to the second sentence of paragraph 33, Tempest hereby incorporates his response to paragraph 32. 34. Insofar as the allegations in paragraph 34 are directed at him, Tempest denies

them. Insofar as the allegations in paragraph 34 are directed at other Defendants, Tempest lacks sufficient knowledge or information to admit or deny them and therefore denies them. 35. Paragraph 35 states legal conclusions as to which no response is necessary. To

the extent that a response is required, Tempest denies the allegations in paragraph 35 insofar as they are directed at him. Insofar as the allegations in paragraph 35 are directed at other

Defendants, Tempest lacks sufficient knowledge or information to admit or deny the allegations and therefore denies them. 36. Paragraph 36 states legal conclusions as to which no response is necessary. To

the extent that a response is required, Tempest admits that he sometimes was provided copies of certain Qwest documents shortly before their pubic disclosure or filing. Insofar as any remaining allegations in paragraph 36 are directed at him, Tempest denies them. Insofar as the allegations

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in paragraph 36 are directed at other Defendants, Tempest lacks sufficient knowledge or information to admit or deny the allegations and therefore denies them. 3. 37. Andersen Defendants

Tempest lacks sufficient knowledge or information to admit or deny the

allegations in the first sentence of paragraph 37, and therefore denies them. Tempest admits that Qwest retained Arthur Andersen to provide independent accounting services, and tax and consulting services. Tempest lacks sufficient knowledge or information to admit or deny any remaining allegations in paragraph 37, and therefore denies them. 38. Tempest admits that Arthur Andersen audited Qwest's financial statements for the

years 1999, 2000, and 2001 and offered unqualified opinions that were included in Qwest's public filings. Tempest lacks sufficient knowledge or information to admit or deny any

remaining allegations in paragraph 38, and therefore denies them. 39. Tempest denies the allegations in the first and fourth sentences of paragraph 39.

Tempest admits that Arthur Andersen audited Qwest's financial statements for the years 1999, 2000, and 2001 and offered unqualified opinions that were included in Qwest's public filings. Tempest lacks sufficient knowledge or information to admit or deny any remaining allegations in paragraph 39, and therefore denies them. 40. Tempest lacks sufficient knowledge or information to admit or deny the

allegations in paragraph 40, and therefore denies them. 4. 41. Citigroup Defendants

Tempest lacks sufficient knowledge or information to admit or deny the

allegations in paragraph 41, and therefore denies them.

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42.

Tempest lacks sufficient knowledge or information to admit or deny the

allegations in the first sentence of paragraph 42, and therefore denies them. Any remaining allegations in paragraph 42 purport to characterize the contents of various provisions of the United States Code. Those statutory provisions speak for themselves, and Tempest respectfully refers the Court to the full statutory language for a complete understanding of its contents. Tempest denies all other allegations in paragraph 42. 43. Tempest lacks sufficient knowledge or information to admit or deny the

allegations in paragraph 43, and therefore denies them. 44. Tempest lacks sufficient knowledge or information to admit or deny the

allegations in paragraph 44, and therefore denies them. 45. Tempest lacks sufficient knowledge or information to admit or deny the

allegations in paragraph 45, and therefore denies them. 46. Tempest admits that Defendant Jack B. Grubman attended a meeting of the Qwest

Board of Directors at which the Board discussed the Qwest ­ U.S. West, Inc. merger. Tempest lacks sufficient information to admit or deny any remaining allegations in paragraph 46, and therefore denies them. 47. Tempest lacks sufficient knowledge or information to admit or deny the

allegations in paragraph 47, and therefore denies them. 48. III. No response to this paragraph is required.

JURISDICTION AND VENUE 49. Tempest admits the allegations in paragraph 49.

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50.

Tempest admits that Plaintiff purports to allege claims under section 10(b),

section 18, and section 20(a) of the Securities and Exchange Act, and SEC Rule 10b-5. Tempest denies all other allegations in paragraph 50. 51. 52. IV. Tempest admits the allegations in paragraph 51. Tempest denies the allegations in paragraph 52.

BACKGROUND A. 53. 54. Qwest Grows Rapidly Into a Fortune 100 Company Tempest adopts and incorporates Qwest's Answer to paragraph 53. Tempest admits that Qwest filed a Form 10-Q on August 14, 1997 which states

that Qwest "completed the initial public offering of 15,525,000 shares of Common Stock on June 27, 1997, raising net proceeds of approximately $319.9 million." Tempest lacks sufficient knowledge or information to admit or deny any remaining allegations in paragraph 54, and therefore denies them. 55. 56. 57. B. 58. 59. Tempest adopts and incorporates Qwest's Answer to paragraph 55. Tempest adopts and incorporates Qwest's Answer to paragraph 56. Tempest denies the allegations in paragraph 57. Qwest Promotes An Image of a Dynamic Company With Double-Digit Growth Tempest denies the allegations in paragraph 58. Tempest lacks sufficient knowledge or information to admit or deny the

allegations in paragraph 59, and therefore denies them. 60. Tempest denies the allegations in the first sentence of paragraph 60. The second

sentence of paragraph 60 purports to characterize Qwest's 1999 Annual Report. That public

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document speaks for itself and Tempest respectfully refers the Court to the full document for a complete understanding of its contents. To the extent that any additional response is necessary, Tempest lacks sufficient knowledge or information to admit or deny any remaining allegations of paragraph 60, and therefore denies them. 61. Paragraph 61 purports to characterize Qwest's 2000 Annual Report. That public

document speaks for itself and Tempest respectfully refers the Court to the full document for a complete understanding of its contents. To the extent that any additional response is necessary, Tempest lacks sufficient knowledge or information to admit or deny any remaining allegations of paragraph 61, and therefore denies them. 62. Paragraph 62 purports to quote from Qwest's 2000 Annual Report. That public

document speaks for itself and Tempest respectfully refers the Court to the full document for a complete understanding of its contents. To the extent that any additional response is necessary, Tempest lacks sufficient knowledge or information to admit or deny any remaining allegations of paragraph 62, and therefore denies them. 63. 64. Tempest adopts and incorporates Qwest's Answer to paragraph 63. Paragraph 64 purports to characterize Qwest's 1999, 2000, and 2001 Annual

Reports. Those public documents speak for themselves, and Tempest respectfully refers the Court to the full documents for a complete understanding of their contents. To the extent that any additional response is necessary, Tempest lacks sufficient knowledge or information to admit or deny any remaining allegations of paragraph 64, and therefore denies them. 65. Tempest adopts and incorporates Qwest's Answer to paragraph 65.

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66.

Tempest denies the allegations in the first sentence of paragraph 66. Tempest

admits that on April 28, 2003, Fortune Magazine published an article in which Qwest is discussed. That article speaks for itself, and Tempest respectfully refers the Court to the full article for a complete understanding of its contents. Tempest lacks sufficient knowledge or information to admit or deny any remaining allegations in paragraph 66, and therefore denies them. 67. 68. Tempest adopts and incorporates Qwest's Answer to paragraph 67. Tempest lacks sufficient knowledge or information to admit or deny the

allegations in paragraph 68, and therefore denies them. 69. Tempest admits that Qwest hosted a conference call on June 20, 2001 during

which Mr. Nacchio and Ms. Szeliga spoke. Tempest lacks sufficient knowledge or information to admit or deny any remaining allegations in paragraph 69, and therefore denies them. 70. Tempest admits that Qwest hosted a conference call on June 20, 2001 during

which Mr. Nacchio and Ms. Szeliga spoke. Tempest lacks sufficient knowledge or information to admit or deny any remaining allegations in paragraph 70, and therefore denies them. 71. Tempest lacks sufficient knowledge or information to admit or deny the

allegations in paragraph 71, and therefore denies them. 72. Tempest admits that Morgan Stanley Dean Witter & Co. issued a report on July

25, 2001 in which Qwest is discussed. That report speaks for itself and Tempest respectfully refers the Court to the full document for a complete understanding of its contents. Tempest lacks sufficient knowledge or information to admit or deny any remaining allegations in paragraph 72, and therefore denies them.

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73.

Tempest admits that Morgan Stanley Dean Witter & Co. issued a report on

August 22, 2001 in which Qwest is discussed. That report speaks for itself, and Tempest respectfully refers the Court to the full document for a complete understanding of its contents. Tempest lacks sufficient knowledge or information to admit or deny any remaining allegations in paragraph 73, and therefore denies them. 74. 75. Tempest denies the allegations in paragraph 74. Tempest lacks sufficient knowledge or information to admit or deny the

allegations in paragraph 75, and therefore denies them. 76. Insofar as the allegations in paragraph 76 relate to Tempest, he denies them.

Tempest lacks sufficient knowledge or information to admit or deny any remaining allegations in paragraph 76, and therefore denies them. 77. 78. 79. 80. Tempest adopts and incorporates Qwest's Answer to paragraph 77. Tempest denies the allegations in paragraph 78. Tempest adopts and incorporates Qwest's Answer to paragraph 79. Tempest lacks sufficient knowledge or information to admit or deny the

allegations in paragraph 80, and therefore denies them. 81. Tempest lacks sufficient knowledge or information to admit or deny the

allegations in paragraph 81, and therefore denies them. 82. 83. Tempest adopts and incorporates Qwest's Answer to paragraph 82. Tempest admits that on March 11, 2002, Qwest issued a press release, which

speaks for itself. Tempest admits that in April 2002, Qwest filed a Form 10-K which speaks for itself. Except as admitted, Tempest denies the allegations in paragraph 83.

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84.

Tempest admits that Qwest issued a press release on July 28, 2002 in which it

stated that it "expects to restate its financial statements for prior periods." Tempest further admits that Qwest filed an SEC Form 8-K on July 29, 2002, incorporating that press release. Those documents speak for themselves, and Tempest respectfully refers the Court to the full documents for a complete understanding of their contents. Tempest denies all other allegations in paragraph 84. C. 85. Qwest Restates Its Financials for 2000, 2001 and Q1 2002, Shattering The Image of its Incredible Growth Over That Period Tempest admits that Qwest issued a press release on July 28, 2002 in which it

stated that it "expects to restate its financial statements for prior periods." Tempest admits that Qwest filed an SEC Form 8-K on July 29, 2002, incorporating that press release. Tempest further admits that, on October 16, 2003, Qwest filed an SEC Form 10-K that restates Qwest's financial statements for the period from July 2000 through December 2001. Those documents speak for themselves, and Tempest respectfully refers the Court to those public documents for a complete understanding of their contents. Tempest denies all other allegations in paragraph 85. 86. Tempest admits that Qwest admits it filed a Form 10-Q on December 4, 2003, for

the period ending March 31, 2003, which contains a restated financial statement for the three month period that ended on March 31, 2002. That document speaks for itself, and Tempest respectfully refers the Court to the full document for a complete understanding of its contents. Tempest denies all other allegations in paragraph 86. 87. Tempest admits that Qwest filed a Form 10-K on October 16, 2003 which speaks

for itself. Tempest denies all other allegations in paragraph 87. 88. Tempest denies the allegations in paragraph 88.

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89.

Tempest admits that Qwest's Form 10-K filed October 16, 2003 and its Form 10-

Q filed on December 4, 2003 speak for themselves. Except as so admitted, Tempest denies the allegations in paragraph 89. 90. Tempest lacks knowledge or information sufficient to admit or deny the

allegations in paragraph 90, and therefore denies them. D. 91. 92. 93. Qwest's Restatement Was Required Because of Fraudulent Accounting Practices Engineered by the Individual Defendants Tempest denies the allegations in paragraph 91. Tempest denies the allegations in paragraph 92. The 2000 Annual Report referenced in paragraph 93 speaks for itself, and

Tempest respectfully refers the Court to the full document for a complete understanding of its contents. Tempest denies all other allegations in paragraph 93. 94. To the extent the allegations in paragraph 94 purport to relate to Tempest, he

denies them. Tempest lacks sufficient knowledge or information to admit or deny any remaining allegations in paragraph 94, and therefore denies them. 95. 96. E. Tempest denies the allegations in paragraph 95. Tempest denies the allegations in paragraph 96. The Citigroup Defendants and Andersen Defendants Played a Central Role in Perpetuating The Fraud of the Individual Defendants 1. 97. necessary. Citigroup's Role in Qwest's Fraud

Because these allegations are directed at other Defendants, no response is To the extent that a response is deemed necessary, Tempest lacks sufficient

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knowledge or information to admit or deny the allegations in paragraph 97, and therefore denies them. 98. To the extent the allegations in paragraph 98 are directed at him, Tempest denies

them. Tempest lacks sufficient information or knowledge to admit or deny any remaining allegations and therefore denies them. 99. To the extent the allegations in paragraph 99 are directed at Tempest, he denies

them. Tempest lacks sufficient knowledge or information to admit or deny any remaining allegations in paragraph 99, and therefore denies them. 100. Tempest lacks sufficient knowledge or information to admit or deny the

allegations in paragraph 100, and therefore denies them. 101. Tempest lacks sufficient knowledge or information to admit or deny the

allegations in paragraph 101, and therefore denies them. 102. Tempest denies the allegations in the first sentence of paragraph 102. Tempest

lacks sufficient knowledge or information to admit or deny any remaining allegations in paragraph 102, and therefore denies them. 103. 104. Tempest adopts and incorporates Qwest's Answer to paragraph 103. Tempest lacks sufficient information or knowledge to admit or deny any

remaining allegations in paragraph 104, and therefore denies them. 105. Tempest lacks sufficient knowledge or information to admit or deny the

allegations in paragraph 105, and therefore denies them. 106. Tempest lacks sufficient knowledge or information to admit or deny the

allegations in paragraph 106, and therefore denies them.

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2. 107.

Andersen's Role in Qwest's Fraud

Because these allegations are directed at other Defendants, no response is

necessary. To the extent that a response is deemed necessary, Tempest notes that the Supreme Court recently overturned the Arthur Andersen conviction referenced in paragraph 107. Tempest lacks sufficient knowledge or information to admit or deny any remaining allegations in paragraph 107, and therefore denies them. 108. necessary. Because these allegations are directed at other Defendants, no response is To the extent that a response is deemed necessary, Tempest lacks sufficient

knowledge or information to admit or deny the allegations in paragraph 108, and therefore denies them. 109. Tempest denies the allegations in the first sentence of paragraph 109. Tempest

lacks sufficient knowledge or information to admit or deny the allegations contained in the second sentence of paragraph 109, and therefore denies them. 110. Tempest denies the allegations in the first sentence of paragraph 110. Tempest

lacks sufficient knowledge or information to admit or deny any remaining allegations in paragraph 110, and therefore denies them. 111. Tempest lacks sufficient knowledge or information to admit or deny the

allegations in paragraph 111, and therefore denies them. 112. Tempest lacks sufficient knowledge or information to admit or deny the

allegations in paragraph 112, and therefore denies them.

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V.

QWEST'S FRAUDULENT ACCOUNTING PRACTICES A. 113. Qwest's Accounting Practices Were Willfully in Violation of GAAP Tempest lacks sufficient knowledge or information to admit or deny the

allegations in paragraph 113, and therefore denies them. 114. Paragraph 114 purports to quote from a section of the Code of Federal

Regulations and to describe standards articulated by the American Institute of Certified Public Accountants ("AICPA"). Rule 4-01 of SEC Regulation S-X speaks for itself, and Tempest respectfully refers the Court to the entire rule for a complete understanding of its contents. Any standards promulgated by the AICPA also speak for themselves, and Tempest respectfully refers the Court to those standards for a complete understanding of their contents. To the extent that an additional response is required, Tempest lacks sufficient knowledge or information to admit or deny the allegations in paragraph 114, and therefore denies them. 115. 116. Tempest denies the allegations in paragraph 115. Tempest admits that the United States House of Representatives Committee on

Energy and Commerce held hearings on September 24 and October 1, 2002 entitled "Capacity Swaps by Global Crossing and Qwest: Sham Transactions Designed to Boost Revenues?" Tempest further admits that certain Qwest officers testified at those hearings. The transcripts of those hearings speak for themselves, and Tempest respectfully refers the Court to the full transcripts for a complete understanding of their contents. Tempest denies all other allegations in paragraph 116. 117. 118. Tempest adopts and incorporates Qwest's Answer to paragraph 117. Tempest denies the allegations in paragraph 118.

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119. B. 120.

Tempest denies the allegations in paragraph 119. Fraud Related to Optical Capacity Tempest denies the allegations in the first sentence of paragraph 120. Tempest

lacks sufficient knowledge or information to admit or deny any remaining allegations in paragraph 120, and therefore denies them. 121. 122. 123. Tempest adopts and incorporates Qwest's Answer to paragraph 121. Tempest denies the allegations in paragraph 122. Tempest denies the allegations in the first two sentence of paragraph 123.

Tempest admits that the term "dark fiber" can refer to fiber optic cable that has been laid but that requires the attachment of electronics to be "lit." 124. 125. Tempest adopts and incorporates Qwest's Answer to paragraph 124. Tempest adopts and incorporates Qwest's Answer to paragraph 125. 1. 126. Fraud Related to Transfer of Optical Capacity for Cash

Tempest lacks sufficient knowledge or information to admit or deny the vague

and ambiguous allegations in paragraph 126, and therefore denies them. 127. Tempest admits that an Indefeasible Right of Use ("IRU") is the exclusive right to

use a specified amount of capacity or fiber for a specified period of time. Tempest lacks sufficient knowledge or information to admit or deny any remaining allegations in paragraph 127, and therefore denies them. 2. 128. GAAP Accounting For IRU Sales

Paragraph 128 purports to characterize FASB Statement No. 13. That document

speaks for itself, and Tempest respectfully refers the Court to the full FASB statement for a

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complete understanding of its contents. Tempest lacks sufficient knowledge or information to admit or deny any remaining allegations in paragraph 128, and therefore denies them. 129. Paragraph 129 purports to characterize FASB Statement No. 13. That document

speaks for itself, and Tempest respectfully refers the Court to the full FASB statement for a complete understanding of its contents. Tempest lacks sufficient knowledge or information to admit or deny any remaining allegations in paragraph 129, and therefore denies them. 130. Paragraph 130 purports to characterize FASB Statement No. 66. That document

speaks for itself, and Tempest respectfully refers the Court to the full FASB statement for a complete understanding of its contents. Tempest lacks sufficient knowledge or information to admit or deny any remaining allegations in paragraph 130, and therefore denies them. 131. Paragraph 131 purports to characterize FASB Statement No. 98 and SFAS

No. 13. Those documents speaks for themselves, and Tempest respectfully refers the Court to the full FASB and SFAS statements for a complete understanding of their contents. Tempest lacks sufficient knowledge or information to admit or deny any remaining allegations in paragraph 131, and therefore denies them. 132. Tempest lacks sufficient knowledge and information to admit or deny the

allegations in paragraph 132, and therefore denies them. 3. 133. 134. Andersen Devised a Scheme to Prop Up Revenue from IRU Sales

Tempest adopts and incorporates Qwest's Answer to paragraph 133. Insofar as the allegations in paragraph 134 are directed towards Qwest, Tempest

denies them. Insofar as the allegations in paragraph 134 are directed at telecommunications

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companies other than Qwest, Tempest lacks sufficient knowledge or information to admit or deny them and therefore denies them. 135. Tempest lacks knowledge or information sufficient to admit or deny the

allegations in paragraph 135 with respect to the amount of IRU revenues Qwest recognized, and therefore denies them. Tempest denies any remaining allegations in paragraph 135. 136. 137. 138. Tempest denies the allegations in paragraph 136. Tempest denies the allegations in paragraph 137. Tempest lacks sufficient knowledge or information to admit or deny the

allegations in paragraph 138, and therefore denies them. 139. The allegations in paragraph 139 purport to characterize FASB Interpretation

No. 43. That FASB document speaks for itself, and Tempest respectfully refers the Court to the full document for a complete understanding of its contents. Tempest lacks sufficient knowledge or information to admit or deny any remaining allegations in paragraph 139, and therefore denies them. 140. The allegations in paragraph 140 purport to characterize FASB Interpretation

No. 43. That FASB document speaks for itself, and Tempest respectfully refers the Court to the full document for a complete understanding of its contents. Tempest lacks sufficient knowledge or information to admit or deny any remaining allegations in paragraph 140, and therefore denies them. 4. 141. Qwest Flouts GAAP Rules and Continues Up-front Revenue Recognition

Tempest lacks sufficient knowledge or information to admit or deny the

allegations in paragraph 141, and therefore denies them.

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142.

Tempest lacks sufficient knowledge or information to admit or deny the

allegations in paragraph 142, and therefore denies them. 143. Tempest admits that the Denver Post published a story on September 9, 2001 in

which Qwest is discussed. Tempest lacks sufficient knowledge or information to admit or deny any remaining allegations in paragraph 143, and therefore denies them. 144. 145. 146. Tempest denies the allegations in paragraph 144. Tempest denies the allegations in paragraph 145. Tempest lacks sufficient knowledge or information to admit or deny the

allegations in paragraph 146, and therefore denies them. 147. Tempest lacks sufficient knowledge or information to admit or deny the

allegations in paragraph 147, and therefore denies them. 148. Tempest admits that Qwest filed a Form 8-K/A on August 7, 2001 which speaks

for itself, and Tempest respectfully refers the Court to the full document for a complete understanding of its contents. Tempest lacks sufficient knowledge or information to admit or deny any remaining allegations in paragraph 148, and therefore denies them. 149. Tempest admits that Qwest filed a Form 10-K on April 1, 2002 which speaks for

itself, and Tempest respectfully refers the Court to the full document for a complete understanding of its contents. Tempest lacks sufficient knowledge or information to admit or deny any remaining allegations in paragraph 149, and therefore denies them. 150. Tempest admits that Qwest filed a Form 10-K on October 16, 2003, which speaks

for itself, and Tempest respectfully refers the Court to the full document for a complete understanding of its contents. Tempest denies any remaining allegations in paragraph 150.

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5. 151. 152.

Use of Capacity Swaps to Further Inflate Revenues

Tempest denies the allegations in paragraph 151. Tempest lacks sufficient knowledge or information to admit or deny the

allegations in the first two sentences of paragraph 152, and therefore denies them. Tempest admits that Qwest acquired IRUs from other telecommunications carriers. Tempest denies any remaining allegations in paragraph 152. 153. Tempest lacks sufficient knowledge or information to admit or deny the

allegations in paragraph 153, and therefore denies them. 154. Paragraph 154 purports to characterize APB Opinion No. 29. That opinion speaks

for itself, and Tempest respectfully refers the Court to the full document for a complete understanding of its contents. Tempest lacks sufficient knowledge or information to admit or deny any remaining allegations in paragraph 154, and therefore denies them. 6. 155. necessary. Andersen Devises Yet Another Way for Qwest to Artificially Boost Revenue From IRU Sales

Because these allegations are directed at other Defendants, no response is To the extent that a response is deemed necessary, Tempest lacks sufficient

knowledge or information to admit or deny the allegations in paragraph 155 and therefore denies them. 156. necessary. Because these allegations are directed at other Defendants, no response is To the extent that a response is deemed necessary, Tempest lacks sufficient

knowledge or information to admit or deny the allegations in paragraph 156, and therefore denies them.

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