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

Civil Action No. 04-RB-781(CBS)

SHRINERS HOSPITALS FOR CHILDREN, a Colorado Corporation, Plaintiff, v. QWEST COMMUNICATIONS INTERNATIONAL, INC., a Delaware Corporation, et al., Defendants.

RICHARD L. WESTON'S ANSWER TO PLAINTIFF'S AMENDED COMPLAINT

Richard L. Weston ("Mr. Weston" or "Defendant") respectfully submits the following Answer to Plaintiff's Amended Complaint ("Complaint"), filed July 26, 2004. PRELIMINARY STATEMENT Many allegations are poorly defined and only generally dated or are lifted from various sources without attribution. Moreover, numerous paragraphs contain unintelligible statements that do not appear to be allegations of fact, or impermissibly contain conclusions of law to which no response is required. As a result, it is difficult to understand many of the allegations in the Complaint with sufficient clarity to allow a precise answer. Although Mr. Weston has attempted to identify and respond to specific allegations in cases where they can be understood sufficiently to permit an answer, Mr. Weston is not certain that he can understand the exact nature of Plaintiff's allegations even in some of these instances. In addition, for documents that the

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Plaintiff does cite, Mr. Weston 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 various headings. No response is required to these conclusory statements. To the extent a response is required, Mr. Weston 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 Mr. Weston reserves the right to withdraw, amend, or modify his answers to the Complaint as later circumstances may warrant. ANSWER ALLEGATIONS COMMON TO ALL COUNTS OF THE AMENDED COMPLAINT 1. Plaintiff, for its Amended Complaint against the defendants herein, respectfully

shows to this court and alleges the facts which support its claims on information and belief except as to the facts relating to its purchases and sales of the securities of QWEST COMMUNICATIONS INTERNATIONAL, INC. which are based upon the business records of the plaintiff. ANSWER No response is required to the statements in paragraph 1 as they are not factual allegations. To the extent a response is required, Defendant denies the statements.

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2.

This Amended Complaint is filed as of course pursuant to Rule 15(a) of the

Federal Rules of Civil Procedure. ANSWER No response is required to the statement in paragraph 2 as it is not a factual allegation. Except as specifically admitted above, Defendant denies the allegations in paragraph 2. 3. There has been no responsive pleading filed to this Complaint by any defendant

heretofore served with process in this action nor has any such defendant filed a Motion for Summary Judgment in this action. ANSWER Defendant denies the allegations in paragraph 3. THE PARTIES TO THIS ACTION 4. Plaintiff is a Charitable non-profit corporation duly organized and existing under

the laws of the State of Colorado having its principal office and principal place of business at Rocky Point Drive Tampa, Florida 33607. ANSWER Defendant lacks sufficient knowledge or information of the allegations in paragraph 4 to admit or deny them, and on that basis denies them. 5. The plaintiff is considered to be a citizen of the State of Colorado by reason of its

incorporation in that State. ANSWER Defendant lacks sufficient knowledge or information of the allegations in paragraph

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5 to admit or deny them, and on that basis denies them. 6. Defendant QWEST COMMUNICATIONS INTERNATIONAL, INC.,

hereinafter termed QWEST, is a corporation duly organized and existing under the laws of the State of Delaware. It has its principal office and place of business at 1801 California Street, Denver Colorado 80202. This defendant is also considered to be a citizen and resident of the State of Colorado under Federal Law. ANSWER Defendant lacks sufficient knowledge or information of the allegations in paragraph 6 to admit or deny them, and on that basis denies them. 7. QWEST CAPITAL FUNDING INC. is a wholly owned subsidiary of the

defendant QWEST and was an authorized agent of the defendant QWEST in issuing various bonds for the benefit of QWEST. QWEST is responsible for the bond claims herein since it was the principal of an authorized agent and also personally participated in the wrongs involved. ANSWER Defendant lacks sufficient knowledge or information of the allegations in paragraph 7 to admit or deny them, and on that basis denies them. 8. Defendant JOEL M. ARNOLD, hereinafter termed ARNOLD, is presently a

resident of LOS GATOS CALIFORNIA. He committed acts of wrongdoing affecting the State of Colorado during his period of employment with the defendant QWEST. A number of these wrongful acts took place within the State of Colorado and affected citizens and residents of the State of Colorado. This defendant was originally hired in 1998 and thereafter promoted to Senior Vice President of QWEST's GLOBAL BUSINESS UNIT in June 1999. In May 2001 he was

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promoted to Executive Vice President of QWEST'S GLOBAL BUSINESS UNIT. He resigned from QWEST in December 2001. ANSWER Defendant lacks sufficient knowledge or information of the allegations in paragraph 8 to admit or deny them, and on that basis denies them. 9. Defendant WILLIAM L. EVELETH, hereinafter termed EVELETH, is a resident

of Evergreen Colorado. He commenced working for QWEST in 1997. In July 2000 he became Vice-president and Chief Financial Officer of a division of QWEST. He is now Senior Vicepresident, finance, and Chief Financial Officer of Corporate Planning and finance. ANSWER Defendant lacks sufficient knowledge or information of the allegations in paragraph 9 to admit or deny them, and on that basis denies them. 10. Defendant GRANT P. GRAHAM, hereinafter termed GRAHAM, is presently a

resident of Evergreen Colorado. He was a Senior Vice-president and Chief Financial Officer of QWEST's GLOBAL BUSINESS UNIT during 2000 and 2001. He was terminated in 2002. ANSWER Defendant lacks sufficient knowledge or information of the allegations in paragraph 10 to admit or deny them, and on that basis denies them. 11. Defendant DOUGLAS K. HUTCHINS, hereinafter termed HUTCHINS, is a

resident of Denver Colorado. This defendant was director of finance for the GLOBAL BUSINESS UNIT of QWEST and reported to defendant GRAHAM from January 2001 until

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February 2002. He was then promoted to Senior Director of Quality. He resigned in October 2002. ANSWER Defendant lacks sufficient knowledge or information of the allegations in paragraph 11 to admit or deny them, and on that basis denies them. 12. Defendant THOMAS W. HALL, hereinafter termed HALL, was hired in August

2000. He was a Senior Vice President of a division of the GLOBAL BUSINESS SYSTEMS UNIT of QWEST until October 2001. He then became Senior Vice President-Chief Quality Officer. His employment was terminated in June 2002. ANSWER Defendant lacks sufficient knowledge or information of the allegations in paragraph 12 to admit or deny them, and on that basis denies them. 13. Defendant BRYAN K. TREADWAY, hereinafter termed TREADWAY, is a

resident of Atlanta, Georgia. He was hired in April 2001 as an assistant controller and promoted to controller in January 2002. He resigned in May 2002. ANSWER Defendant lacks sufficient knowledge or information of the allegations in paragraph 13 to admit or deny them, and on that basis denies them. 14. Defendant JOHN M. WALKER, hereinafter termed WALKER, is a resident of

Highland Ranch Colorado. He was hired by QWEST in February 1998 and promoted to VicePresident Sales for a division of QWEST in November of 2000. He no longer is employed by QWEST.

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ANSWER Defendant lacks sufficient knowledge or information of the allegations in paragraph 14 to admit or deny them, and on that basis denies them. 15. Defendant RICHARD L. WESTON, hereinafter termed WESTON, is a resident

of Lone Tree Colorado. He was hired by QWEST in June 1997. In September 1999 he was promoted to Senior Vice-president of Product Development of the Internet Solutions Division of QWEST. In September 2001 he became Senior Vice-president of Strategic Sales of QWEST. He left QWEST in May 2002. ANSWER Defendant admits that he is a resident of Lone Tree, Colorado and that his employment with Qwest began in June 1997. Defendant further admits that in September 1999, he became Senior Vice President, Qwest Internet Solutions and that he was employed in this position until May 31, 2002. 16. The defendants "DOES numbers 1 to 10" are those officers, directors, controlling

persons and/or senior managers of the defendant QWEST whose insistence on unreasonable purported earnings directly caused the acts of wrongdoing involved herein. These parties are presently not presently properly identified for the purpose of suit against them but will be specifically named when so identified after full discovery is had in this action. ANSWER Defendant lacks sufficient knowledge or information of the allegations in paragraph 16 to admit or deny them, and on that basis denies them.

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JURISDICTION AND VENUE 17. The jurisdiction and venue allegations are different with respect to the various

Counts of this Complaint and will be set forth separately and subsequently in each of the Counts of this Complaint. ANSWER No response is required to the statements in paragraph 17 are not factual allegations. To the extent a response is required, Defendant denies the statements in paragraph 17. GENERAL DESCRIPTION OF THIS ACTION 18. This action is a personal, non class suit based on the Federal Securities Laws, the

Colorado State Securities Laws, the Colorado State Laws relating to Negligent Misrepresentation, and the Colorado State Common Law relating to common law fraud and deceit and any other unlawful conduct as set forth in this Amended Complaint ANSWER Defendant denies the allegations in paragraph 18. 19. This action is brought against the defendants, jointly and severally, because of

wrongdoing connected with the false and misleading financial reports of the defendant QWEST which were participated in by the individual defendants in the scope of their employment. ANSWER Defendant denies the allegations in paragraph 19. 20. These financial reports were disseminated to public stockholders of QWEST

through press releases and filed with the United States Securities and Exchange Commission

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during a period of time commencing approximately in April 2000 and continuing at least until February 2003 and possibly for a period of time thereafter which has not yet been definitively determined. ANSWER Defendant admits that Qwest filed periodic public reports, issued press releases, and engaged in other public communications, but states affirmatively that Defendant had no role in their preparation or dissemination. Except as specifically admitted above, Defendant denies the allegations in paragraph 20. DESCRIPTION OF OTHER PENDING ACTIONS AGAINST QWEST 21. There are a number of pending actions in this Court and elsewhere which may be

related in part to the claims set forth in this Complaint and these actions are as follows: ANSWER Defendant admits that there are other actions pending against Qwest in various courts. Except as specifically admitted above, Defendant denies the allegations in paragraph 21. 22. There are a number of purported Federal class actions against the defendant

QWEST are pending in this Court commencing in February 2002. These purported class actions were based on violations of the Federal Securities Laws. ANSWER Defendant lacks sufficient knowledge or information regarding the allegations in paragraph 22 to admit or deny them, and on that basis denies them.

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23.

There are also a number of other actions also pending in various Courts relating to

possible issues set forth in this Complaint as follows: ANSWER Defendant admits that there are other actions pending against Qwest in various courts. Except as specifically admitted above, Defendant denies the allegations in paragraph 23. 24. There also is a purported Colorado State Court Securities class action originally

brought in the Colorado State District Court for Boulder Colorado and removed to the United States District Court for the District of Colorado. An application for remand of this action has been made and is pending undetermined in the United States District Court for the District of Colorado. ANSWER Defendant lacks sufficient knowledge or information regarding the allegations in paragraph 24 to admit or deny them, and on that basis denies them. 25. There is a personal non class action brought against QWEST by Dutch investors

and is pending in this Court. ANSWER Defendant lacks sufficient knowledge or information regarding the allegations in paragraph 25 to admit or deny them, and on that basis denies them. 26. There is a personal non class action based upon the State Securities Laws of the

State of Illinois pending in the Illinois State Courts.

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ANSWER Defendant lacks sufficient knowledge or information regarding the allegations in paragraph 26 to admit or deny them, and on that basis denies them. 27. There has been a purported Stockholder's Derivative action which has been

heretofore filed in a Colorado State Court and a proposed settlement is before that Court for approval on June 15th, 2004. Counsel for the plaintiff has been advised that the proposed settlement of this action has been approved by the said Colorado State Court. ANSWER Defendant lacks sufficient knowledge or information regarding the allegations in paragraph 27 to admit or deny them, and on that basis denies them. 28. There is an action pending in this Court brought by the United States Securities

and Exchange Commission in February 2003 against certain defendants in this litigation. ANSWER Defendant admits that the Securities and Exchange Commission filed a complaint against Messrs. Arnold, Eveleth, Graham, Hall, Hutchins, Treadway, Walker and Weston, and that this action is still pending against certain individuals. Except as specifically admitted above, Defendant denies the allegations in paragraph 28. 29. A criminal action has been brought by the United States Attorney against

individual defendants in this action which was pending in this Court. Some of the defendants in that action were acquitted and the jury disagreed with respect to the others. Counsel for the plaintiff has been advised that a guilty plea has now been received from one of the defendants

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whom the jury could not agree upon and that the other of those defendants upon whom the jury could not agree upon will be re-tried. ANSWER Defendant lacks sufficient knowledge or information regarding the allegations in paragraph 29. 30. Counsel for the plaintiff has also been advised that further investigation is being

made by Governmental Authorities of the financial wrongdoing committed by the defendants herein. ANSWER Defendant lacks sufficient knowledge or information regarding the allegations in paragraph 30. TIME PERIOD OF THE ACTS OF WRONGDOING SET FORTH IN THIS COMPLAINT 31. The acts of wrongdoing set forth in this Complaint commenced on or about April

19, 2000. They were concealed by the defendants and have not yet been completely disclosed. ANSWER Defendant denies the allegations in paragraph 31. 32. Prior to the date of the filing of this action there was a statement made of possible

financial irregularity made by the publication of an article in the Wall Street Journal setting forth a number of claimed irregularities in QWEST's accounting. This disclosure was not sufficient to constitute any required notice to the plaintiff of the acts of wrongdoing set forth in this Complaint.

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ANSWER Defendant lacks sufficient knowledge or information regarding the allegations in paragraph 32 to admit or deny them, and on that basis denies them. 33. However, the mere publication of this article did cause a decline in the public

market price of QWEST common stock. ANSWER Defendant lacks sufficient knowledge or information regarding the allegations in paragraph 33 to admit or deny them, and on that basis denies them. 34. There was a disclosure of certain of the claims set forth in this Complaint by

reason of the filing of the SEC Complaint in this Court in February 2003. However a full disclosure of the acts of wrongdoing involved has not yet been made. Counsel for the plaintiff has been advised that further investigations of this matter by various Governmental Agencies are now taking place. ANSWER Defendant admits that on February 25, 2003, the Securities and Exchange Commission filed a complaint against Messrs. Arnold, Eveleth, Graham, Hall, Hutchins, Treadway, Walker and Weston. Defendant respectfully refers the Court to the complete document for a proper understanding of its contents and any attempt to characterize it is denied. Defendant notes that the remaining allegations in paragraph 34 are vague and ambiguous and Defendant denies them on that basis. Except as specifically admitted above, Defendant denies the allegations in paragraph 34.

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35.

The failure to make a complete disclosure of the wrongs involved by QWEST

causes certain of the relevant Statutes of Limitations to be "tolled" until a complete disclosure of the wrongs involved is made. ANSWER Defendant denies the allegations in paragraph 35. 36. The acts involved herein by the defendants as presently disclosed also constitute a

series of related acts of wrongdoing and thus constitutes a "continuing violation" and the plaintiff therefore states that no running of any relevant Statute of Limitations has presently commenced until all of the acts of wrongdoing involved herein have been terminated. ANSWER Defendant denies the allegations in paragraph 36. 37. The relevant Statutes of Limitation also do not commence to run until the

wrongful acts involved have been sufficiently discovered by a plaintiff to permit the filing of an appropriate Complaint or which could have been so discovered by the exercise of reasonable diligence. ANSWER Defendant denies the allegations in paragraph 37. 38 The legal requirements of "sufficient disclosure" to require a plaintiff to institute

appropriate legal action means that there must be sufficient disclosure to permit the filing of a Complaint which will survive a Motion to Dismiss.

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ANSWER No response is required to the allegations in paragraph 38 as they constitute legal conclusions. To the extent a response is required, Defendant denies the allegations in paragraph 38. 39 In order to satisfy this requirement of "disclosure" to cause the relevant Statute of

Limitations to run it is noted that Federal Law with respect to Securities Violations does not permit discovery of a defendant to take place until the sufficiency of the Complaint as filed is determined by the appropriate Court. ANSWER No response is required to the allegations in paragraph 39 as they constitute legal conclusions. To the extent a response is required, Defendant denies the allegations in paragraph 39.

THE LOSSES SUSTAINED BY THE PLAINTIFF BY REASON OF THE WRONGFUL ACTS OF THE DEFENDANTS 40. During the period of wrongdoing, whose duration has not yet been determined,

the plaintiff sustained losses on its purchases and sales of QWEST securities including common stock and bonds. The details of these losses are set forth in EXHIBIT A annexed to this Complaint. Exhibit A shows the dates of purchases or sale of QWEST securities, the identification of the securities, the prices paid or received for the securities, the investment adviser of the plaintiff who purchased or sold the security on the plaintiff's behalf, and the identification of the contact person of the investment adviser involved and contact information.

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ANSWER Defendant denies the allegations in the first sentence of paragraph 40. Defendant lacks sufficient knowledge or information of the allegations in the second sentence of paragraph 40 to admit or deny them, and on that basis denies them. 41. The time period of the transactions of the plaintiff with respect to QWEST

securities set forth in EXHIBIT A annexed to this Complaint extends from April 19, 2000 to February 2002. The additional losses of the plaintiff, if any, from February 2002 to June 2004 are presently being computed and will subsequently disclosed to defendants in an appropriate manner.. ANSWER Defendant lacks sufficient knowledge or information of the allegations in paragraph 41 to admit or deny them, and on that basis denies them. 42. The net losses of the plaintiff during the period of wrongdoing involved relating

to the plaintiff's transactions in the securities of QWEST involved both its common stock and bonds from April 19, 2000 to February 2002 amount to $17,103,762.80. The additional losses of the plaintiff, if any, form the period commencing from February 2002 to June 2004 will be subsequently appropriately disclosed. ANSWER Defendant lacks sufficient knowledge or information of the allegations in paragraph 42 to admit or deny them, and on that basis denies them. 43. Plaintiff purchased the securities of QWEST on a public stock market during the

period of wrongdoing set forth in this complaint.

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ANSWER Defendant lacks sufficient knowledge or information of the allegations in paragraph 43 to admit or deny them, and on that basis denies them. 44. The transactions relating to QWEST common stock during the period of

wrongdoing set forth in this Complaint were made through the following investment advisers whose names are set forth herein as follows: h NAME OF INVESTMENT ADVISER 1. Bank One Kentuck, N.A. 2. First Hawaiian Bank 3. Harbor Capital Management 4. Invesco Capital Management 5. Key Trust Co of Maine 6. Mellon Bank N.A. 7. NCB Dayton 8. Pacific Century 9. Wells Fargo Bank 10. State Street CONTACT PERSON Donald Secrest 859-231-2434 Mariene Yee 808-525-7120 Mark Majka 617-478-7211 Tonya Toth 404-439-3138 Jeffrey Wells 207-874-7138 John Dagenhard 412-234-5962 Tim McDonough 216-222-2576 David Chung 808-538-4005 Robert Bissell 213-253-3180 Tony Seggerman 617-664-6116

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ANSWER Defendant denies the allegations in the first sentence of paragraph 44. Defendant lacks sufficient knowledge or information of the allegations in the list in paragraph 44 to admit or deny them, and on that basis denies them. 45. The purchases and sales of Qwest bonds were made through the following

investment advisers whose names and the name of the contact person involved are set forth herein as follows:

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NAME OF INVESTMENT ADVISOR 1. Fleet National Bank 2. Fleet National Bank 3. Harbor Capital Management 4. Mellon Bank N.A. 5. Mellon Bank N.A. 6. Mellon Bank N.A. 7. Northern Trust Company 8. Northern Trust Company 9. PNC 10. Revised Retirement 11. Revised Retirement 12. Trusco Capital Management 13. Trusco Capital Management 14. Wells Fargo Bank

TYPE OF BOND PURCHASED BY PLAINTIFF Private Placement QWEST Capital Funding, Inc. 7.25% Private Placement QWEST Capital Funding, Inc. NT 7.25% due 2/15/2001 QWEST Communications International SR NT Private Placement QWEST Capital Funding NT 144A 7.25% QWEST Capital Funding NT 144A 7.25% QWEST Capital Funding NT 7.25% due 2/15/2011 Private Placement QWEST Capital Funding NT 144A 7.25% QWEST Capital Funding NT 7.25% due 2/15/2011 QWEST Capital Funding 7.9% due 8/15/2010 Private Placement QWEST Capital Funding NT 144A 7.25% Qwest Capital Funding GTD NT 7.75% Private Placement QWEST Capital Funding 7.25% Private Placement QWEST Capital Funding GTD NT 144A 7.75% QWEST Capital Funding 7.90%

CONTACT PERSON Bill Crosswhite 860-952-7255 Bill Crosswhite 860-952-7255 Mark Majka 617-478-7211 John Degenhard 412-234-5962 John Degenhard 412-234-5962 John Degenhard 412-234-5962 Robert Johnson 312-630-8091 Robert Johnson 312-630-8091 Michael Ball 215-585-5573 Robert Johnson 312-630-8091 Robert Johnson 312-630-8091 Jim Foster 404-827-6987 Jim Foster 404-827-6987 Robert Bissell 213-253-3180

ANSWER Defendant lacks sufficient knowledge or information of the allegations in paragraph 45 to admit or deny them, and on that basis denies them.

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46.

The public stock market upon which the common stock of QWEST is publicly

traded is an efficient public market wherein the reported market value thereof is determined by the public reports and press releases issued by companies listed on the said public stock exchange.. ANSWER Defendant notes that the allegation that the Company's securities are traded in an "efficient public market" is a legal conclusion to which no response is required. To the extent a response is required, Defendant denies the allegations in paragraph 46. 47. Significant components of the public determination of the market value of such

publicly traded common stock listed upon the said public stock exchange are reported revenue, earnings, and revenue and earnings growth set forth in the information issued by such listed companies. ANSWER Defendant notes that the statements in paragraph 47 are so vague and ambiguous that Defendant is unable to ascertain the intended meaning and denies them on that basis. 48. Also significant are the projections of the future earnings and revenues of such

listed companies. ANSWER Defendant notes that the statements in paragraph 48 are so vague and ambiguous that Defendant is unable to ascertain the intended meaning and denies them on that basis.

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49.

The public market value of QWEST common stock was inflated by the issuance

of willfully false and/or misleading public information by the defendant QWEST through senior management personnel acting within the scope of their employment. ANSWER Defendant denies the allegations in paragraph 49. 50 The wrongs involved were also caused by the policy of the controlling parties of

QWEST to require specific amounts and/or percentages of revenue growth to be reported, to base bonuses and other prerequisites of those employees whose financial reports met the previously directed targets of revenues and revenue growth and indicating that the financial reports of those employees that did not meet such targets could face dismissal.. ANSWER Defendant denies the allegations in paragraph 50. 51. In connection with the purchase of the common stock of QWEST during the

period of wrongdoing set forth in this complaint, the defendant QWEST under the direction of the individual defendants and possibly other parties, issued false and/or misleading financial information which was generated within the State of Colorado, as will be detailed subsequently in this complaint. This false and misleading information thus inflated the revenue of QWEST and thus inflated the public market price of QWEST common stock and bonds. ANSWER Defendant denies the allegations in paragraph 51. 52. The wrongs involved were willfully, deliberately, negligently, or grossly

negligently performed by management personnel of QWEST acting within the scope of their

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employment. ANSWER Defendant denies the allegations in paragraph 52. 53. Plaintiff purchased the said QWEST common stock during the said period of

wrongdoing without knowledge on its part or on the part of its investment advisers of the false and/or misleading nature of the public information supplied by QWEST. ANSWER Defendant denies the allegations in paragraph 53. 54. As detailed subsequently in this complaint because the defendant QWEST,

through its senior management acting within the scope of their employment, made willfully, negligently and/or grossly negligently false and misleading public information. ANSWER Defendant denies the allegations in paragraph 54. 55. The said defendants are jointly and severally liable, in addition to the actual

damages sustained by the plaintiff, for additional punitive damages as may be fixed by the trial jury in this action. Plaintiff suggests a punitive damage award of an appropriate multiple of the damages actually sustained by the plaintiff in this case. ANSWER Defendant denies the allegations in paragraph 55. 56. The plaintiff directly or through its investment advisers, directly or constructively

relied upon the said false and misleading representations in purchasing the securities of QWEST during the period of wrongdoing set forth in this Complaint.

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ANSWER Defendant denies the allegations in paragraph 56. 57. The defendant QWEST through its senior management acting within the scope of

their employment, knew, should have known, negligently, or grossly negligently failed to discover that said representations were false and misleading. ANSWER Defendant denies the allegations in paragraph 57. 58. By reason of the foregoing plaintiff has suffered the actual damages of Seventeen

Million One Hundred Three Thousand Seven Hundred Sixty-Two Dollars and Eighty Cents ($17,103,762.80) as set forth herein. ANSWER Defendant denies the allegations in paragraph 58. 59. Some of the claims of the plaintiff herein are also based on the doctrine of "fraud

on the market." ANSWER Paragraph 59 states a legal conclusion to which no response is required; if response is required, Defendant denies the allegations in paragraph 59. 60. customers. The defendant QWEST provides telecommunications and internet services to its

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ANSWER The allegations contained in paragraph 60 are not directed to Defendant and thus no response is required. To the extent a response is deemed required, the allegations in paragraph 60 are denied. 61. On July 18, 1999 the corporation forming one component of the company now

known as QWEST entered into a merger agreement with US West, Inc. one of the local telephone companies divested from AT & T. The merger agreement was completed on June 30, 2000. US West was the surviving Company after the merger and changed its name to QWEST. The other component of the merger involved became a public company by an initial public offering of June 23, 1997. ANSWER The allegations contained in paragraph 61 are not directed to Defendant and thus no response is required. To the extent a response is deemed required, the allegations in paragraph 61 are denied. 62. QWEST has a component unit known as GLOBAL BUSINESS MARKETS

which in turn has a wholly owned subsidiary known as GOVERNMENT AND EDUCATIONAL SOLUTIONS. These units purported financial results were included in the public reports of QWEST. ANSWER The allegations contained in paragraph 62 are not directed to Defendant and thus no response is required. To the extent a response is deemed required, the allegations in paragraph 62 are denied.

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63.

The acts of wrongdoing commenced with the filing by the defendant QWEST of a

press release on April 19, 2000 Qwest setting forth the company's purported financial results for the first quarter of 2000. The information set forth in the said press release was then contained in a 10-Q report filed with the United States Securities and Exchange Commission, hereinafter termed the SEC, on May 12, 2000. ANSWER Defendant had no role in the dissemination, preparation, or filing of any Qwest financial statements or press releases and thus lacks sufficient knowledge or information of the statements in paragraph 63 to admit or deny them, and on that basis denies them. 64 In the above documents QWEST reported record revenue of 8.22 billion dollars.

The reported revenue was false and misleading as will be set forth hereinafter in this Complaint. ANSWER Defendant had no role in the dissemination, preparation, or filing of any Qwest financial statements or press releases and thus lacks sufficient knowledge or information of the statements in paragraph 64 to admit or deny them, and on that basis denies them. 65. The acts of wrongdoing continued with the filing by the defendant QWEST of a

press release on July 19, 2000 setting forth the purported financial results of the Company for the third quarter of 2000 and the six months of 2000. The information set forth in this press release was repeated in a 10-Q report filed with the SEC on August 11, 2000.

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ANSWER Defendant had no role in the dissemination, preparation, or filing of any Qwest financial statements or press releases and thus lacks sufficient knowledge or information of the statements in paragraph 65 to admit or deny them, and on that basis denies them. 66. The press release and the 10-Q report set forth purported revenues for the second

quarter of 2000 of 1.28 billion dollars. ANSWER Defendant had no role in the dissemination, preparation, or filing of any Qwest financial statements or press releases and thus lacks sufficient knowledge or information of the statements in paragraph 66 to admit or deny them, and on that basis denies them. 67. The acts of wrongdoing continued with the filing by the defendant QWEST of a

press release on October 24, 2000 setting forth the purported financial results of the Company for the third quarter of 2000 and the nine months of 2000. The information contained in the said press release was confirmed in a 10-Q report filed with the SEC on November 18, 2000. ANSWER Defendant had no role in the dissemination, preparation, or filing of any Qwest financial statements or press releases and thus lacks sufficient knowledge or information of the statements in paragraph 67 to admit or deny them, and on that basis denies them. 68. The press release and the 10-Q report set forth purported revenues of 3.46 billion

dollars for the past nine months of 2000. The reported revenue was false and misleading as will be set forth hereinafter in this Complaint.

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ANSWER Defendant had no role in the dissemination, preparation, or filing of any Qwest financial statements or press releases and thus lacks sufficient knowledge or information of the statements in paragraph 68 to admit or deny them, and on that basis denies them. 69. The acts of wrongdoing continued with the filing by the defendant QWEST of a

press release on January 24 2001 setting forth the purported financial results of the Company for the fourth quarter and the year of 2000. The information contained in the said press release was confirmed in a 10-K report filed with the SEC on March 6, 2001. ANSWER Defendant had no role in the dissemination, preparation, or filing of any Qwest financial statements or press releases and thus lacks sufficient knowledge or information of the statements in paragraph 69to admit or deny them, and on that basis denies them. 70. The 10-K report set forth record revenues of 5.02 billion dollars. The reported

revenue was false and misleading as will be set forth hereinafter in this Complaint ANSWER Defendant had no role in the dissemination, preparation, or filing of any Qwest financial statements or press releases and thus lacks sufficient knowledge or information of the statements in paragraph 70 to admit or deny them, and on that basis denies them. 71. The acts of wrongdoing continued with the filing by the defendant QWEST of a

press release on April 24, 2001 setting forth the purported financial results of the Company for the first quarter of 2001. The information contained in the said press release was confirmed in a 10-Q report thereafter filed with the SEC on May 15, 2001.

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ANSWER Defendant had no role in the dissemination, preparation, or filing of any Qwest financial statements or press releases and thus lacks sufficient knowledge or information of the statements in paragraph 71 to admit or deny them, and on that basis denies them. 72. The purported revenues set forth in the aforesaid press release and 10-Q report

were false and misleading as will be set forth hereinafter in this Complaint. ANSWER Defendant had no role in the dissemination, preparation, or filing of any Qwest financial statements or press releases and thus lacks sufficient knowledge or information of the statements in paragraph 72 to admit or deny them, and on that basis denies them. 73. The acts of wrongdoing continued with the filing by the defendant QWEST of a

press release on July 24, 2001 setting forth the purported financial results of the Company for the second quarter and six months past of 2001. The information contained in the said press release was confirmed in a 10-Q report thereafter filed with the SEC on August 14, 2001. ANSWER Defendant had no role in the dissemination, preparation, or filing of any Qwest financial statements or press releases and thus lacks sufficient knowledge or information of the statements in paragraph 73 to admit or deny them, and on that basis denies them. 74. The said press release and 10Q report set forth the purported revenues for the

period involved. These reported revenues were false and misleading as will be set forth hereinafter in this Complaint. ANSWER

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Defendant had no role in the dissemination, preparation, or filing of any Qwest financial statements or press releases and thus lacks sufficient knowledge or information of the statements in paragraph 74 to admit or deny them, and on that basis denies them. 75. The acts of wrongdoing continued with the filing by the defendant QWEST of a

press release on October 31, 2001 setting forth the purported financial results of the Company for the third quarter and the past nine months of 2001. The information contained in the said press release was confirmed in a 10-Q report thereafter filed with the SEC on November 14, 2001. ANSWER Defendant had no role in the dissemination, preparation, or filing of any Qwest financial statements or press releases and thus lacks sufficient knowledge or information of the statements in paragraph 75 to admit or deny them, and on that basis denies them. 76. In the above documents QWEST reported revenues of $15 billion dollars. These

reported revenues were false and misleading as will be subsequently set forth in this Complaint. ANSWER Defendant had no role in the dissemination, preparation, or filing of any Qwest financial statements or press releases and thus lacks sufficient knowledge or information of the statements in paragraph 76 to admit or deny them, and on that basis denies them. 77. The acts of wrongdoing continued with the filing by the defendant QWEST of a

press release on January 29, 2002 setting forth the purported financial results of the Company for the fourth quarter and for the year of 2001.

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ANSWER Defendant had no role in the dissemination, preparation, or filing of any Qwest financial statements or press releases and thus lacks sufficient knowledge or information of the statements in paragraph 77 to admit or deny them, and on that basis denies them. 78. The press release of January 24, 2002 set forth year end revenues of QWEST of

19.74 billion dollars. These reports of revenues were false and misleading as will be set forth hereinafter in this Complaint. ANSWER Defendant lacks sufficient knowledge or information of the allegations in paragraph 78 to admit or deny them, and on that basis denies them. 79. On February 13, 2002 the Wall Street Journal claimed revelation that various

mechanisms were used to improperly enhance QWEST's financial results. ANSWER Defendant lacks sufficient knowledge or information of the allegations in paragraph 79 to admit or deny them, and on that basis denies them. 80. As a result of the Wall Street Journal disclosures the market value of QWEST

common stock took a precipitous drop and the SEC commenced an investigation which culminated in the filing of an SEC complaint in February 2003. ANSWER Defendant lacks sufficient knowledge or information of the allegations in paragraph 80 to admit or deny them, and on that basis denies them.

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81.

QWEST is liable to the plaintiff pursuant to the allegations of this Complaint

because it issued and disseminated false and misleading financial reports upon which the plaintiff directly or constructively relied in order to purchase the common stock of QWEST which was purchased at inflated values. Any wrongful acts committed by the individual defendants were committed within the scope of their employment. ANSWER Defendant denies the allegations in paragraph 81 to the extent they are directed to Defendant. 82. The individual defendants are liable to the plaintiff because they committed

wrongful acts which were committed within the scope of their employment. ANSWER Defendant denies the allegations in paragraph 82. 83. The common stock of QWEST is publicly traded on a public stock exchange. The

market value of publicly traded stock is primarily determined by the reported earnings of the stock issuer involved. This is particularly true when the stock is that of a "public utility" type of issuer such as QWEST where a major portion of its revenues comes from local telephone service users. ANSWER Defendant admits that Qwest's common stock is traded on the New York Stock Exchange. Defendant lacks sufficient knowledge or information as to the remainder of the allegations in paragraph 83 to admit or deny them, and on that basis denies them.

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84.

Another factor influencing the pubic market value of common stocks are

purported "earnings growth". ANSWER Defendant lacks sufficient knowledge or information of the allegations in paragraph 84 to admit or deny them, and on that basis denies them. 85. Beginning in 1999 and continuing after the merger with US West, Senior

management of QWEST, who are named as "JOHN DOE" defendants in this Complaint, made excessive and unreasonable earnings growth projections for QWEST. ANSWER Defendant lacks sufficient knowledge or information of the allegations in paragraph 85 to admit or deny them, and on that basis denies them. 86. In order to meet the unreasonable and excessive earnings growth projections the

Senior Management of QWEST required their subordinates to follow rigid and inflexible revenue objectives. ANSWER Defendant denies the allegations in paragraph 86. 87. The senior management of QWEST exerted extreme pressure on their

subordinates to meet or exceed these above revenue projections at all costs. ANSWER Defendant denies the allegations in paragraph 87. 88. In addition, management and employee bonuses were dependent upon such

parties meeting or exceeding the revenue growth projections made by senior management and

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further that failure to meet such revenue projections could lead to dismissal of the executive or employee involved. ANSWER Defendant denies the allegations in paragraph 88. THE GENUITY SALES AND SERVICE CONTRACT 89. The fraudulent transactions involving the above matters resulted in the improper

recordation of approximately $100,000,000 in revenue by QWEST in the third quarter of 2000 as follows: ANSWER Defendant had no role in the dissemination, preparation, or filing of any Qwest financial statements or press releases and thus lacks sufficient knowledge or information of the statements in paragraph 89 to admit or deny them, and on that basis denies them. 90. In September 22, 2000 QWEST and GENUITY entered into a sales and service

contract wherein QWEST was to supply certain equipment and internet services to GENUITY. ANSWER Defendant admits that during the third quarter of 2000, Qwest entered into a contract with Genuity in which it sold certain equipment to Genuity and that Qwest agreed to provide services to Genuity. Except as specifically admitted above, Defendant denies the allegations in paragraph 90. 91. The genesis of this contract was the following:

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ANSWER No response is required to the incomplete statement in paragraph 91. To the extent a response is required, Defendant denies the statement in paragraph 91. 92. Prior to the merger between the prior public company and US West, Genuity had

previously contracted to secure network services from US West but had sought a lower price for these services. ANSWER Defendant admits that prior to the merger between Qwest and US WEST, Genuity had a contract with US WEST and that, at some point during the pendency of contract, Genuity sought to obtain lower pricing on some of the services it was receiving. Except as specifically admitted above, Defendant denies the allegations in paragraph 92. 93. ANSWER Defendant notes that the allegations in paragraph 93 are vague and ambiguous, but Defendant admits that at times in the past, Qwest conducted negotiations with Genuity. Except as specifically admitted above, Defendant denies the allegations in paragraph 93. 94. During these negotiations between QWEST and Genuity it was contemplated Negotiations then ensued between Genuity and QWEST for a new contract.

initially that QWEST would own and operate the equipment to supply the services since Genuity did not wish to own or operate the equipment.

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ANSWER Defendant notes that the allegations in paragraph 94 are so vague and ambiguous that Defendant is unable to ascertain their intended meaning, and denies them on that basis. 95. However the negotiators of QWEST who were defendants ARNOLD and

WESTON made it clear to the GENUITY team that it was necessary to have a "sale" provision in the final agreement because it was necessary to generate $100,000,000 in revenue with respect thereto. ANSWER Defendant denies the allegations in paragraph 95. 96. It was then decided to split the final agreement into two parts with one part to be a

purported "sale" agreement and the other part to be a purported "service" agreement. ANSWER Defendant denies the allegations in paragraph 96. 97. There was no business purpose to split the Genuity agreement into two parts and

this was done solely to attempt to recognize $100,000,000 of purported revenue in the third quarter of 2000. ANSWER Defendant denies the allegations in paragraph 97. 98. Defendants ARNOLD, EVELETH, GRAHAM, and WESTON received a

September 14, 2000 e-mail from a QWEST financial analyst assigned to the Genuity transaction which acknowledged that $80,000,000 in EBITDA would result from the purported equipment

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sale to Genuity but also noting that a significant risk existed to the effect that the $100,000,000 of revenue might not be recognized immediately in the transaction. ANSWER Defendant admits that on September 14, 2000, an email appears to have been sent from the account of a Qwest employee to the accounts of other Qwest employees that discusses the Genuity transaction. Defendant respectfully refers the Court to the entire document for a complete understanding of its content and any attempt to characterize it is denied. Except as specifically admitted above, Defendant denies the allegations in paragraph 98. 99. Also in September 2000 a QWEST sales team leader expressed concern to

defendant ARNOLD about the propriety of immediately recognizing the $100,000,000 of purported revenue from the purported equipment sale under the Genuity agreement because under similar agreements entered into by QWEST such revenue was only recognized over the life of the service agreement. Defendant ARNOLD did not consider this concern to be significant. ANSWER Defendant lacks sufficient knowledge or information of the allegations in paragraph 99 to admit or deny them, and on that basis denies them. 100. Furthermore defendant ARNOLD stated on at least one occasion that he was not

concerned about any losses that might occur under the service contract since his primary concern was the premature recognition of the $100,000,000 in revenue under the Genuity purported sales agreement.

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ANSWER Defendant lacks sufficient knowledge or information of the allegations in paragraph 100 to admit or deny them, and on that basis denies them. 101. Defendant WESTON in negotiating the agreements involved with Genuity stated

that QWEST needed the $100,000,000 in revenue for the third quarter of 2000 in order to agree to the Genuity agreements. ANSWER Defendant denies the allegations contained in paragraph 101. 102. Also, on several other occasions, defendant WESTON admitted to lower level

employees that QWEST needed $100,000,000 in purported revenue for the third quarter of 2000. ANSWER Defendant denies the allegations contained in paragraph 102. 103. QWEST paid Genuity a $4,000,000 bonus to sign the services agreement before

the end of the third quarter of 2000. Defendants ARNOLD and WESTON were aware of this $4,000,000 payment and the reason that it was made. ANSWER Defendant admits that he was aware that Qwest agreed to pay a $4 million signing premium on or before December 31, 2000, in consideration for Genuity's execution of the agreement during the month of September 2000, but denies the remainder of the allegations contained in paragraph 103 to the extent it alleges that Defendant was aware that any such payment was made for an improper purpose.

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104.

Defendant EVELETH was asked to approve the structure of the equipment

purchase agreement with Genuity. This defendant knew that contrary to GAAP the services contract placed the risk of the ownership of the equipment with QWEST and not with GENUITY. ANSWER Defendant lacks sufficient knowledge or information regarding the allegations in paragraph 104 to admit or deny them, and on that basis denies them. 105. In order to recognize purported revenue for the purported "equipment sales"

QWEST would have to deliver the equipment by September 30, 2000. Even though the normal method of shipment of this equipment would be by ground transport defendant WESTON agreed to have the equipment delivered by chartered jet aircraft at a substantially higher cost so that it could be delivered by September 30, 2000. ANSWER Defendant was involved in the decision to ship equipment to Genuity by air freight. Defendant denies the remainder of the allegations contained in paragraph 105. 106. The separation of the sales contract from the service contract was not the usual

practice in the industry. Indeed Genuity's five other vendors at that time owned the equipment upon which service was provided. Even more importantly Genuity itself considered the sales agreement and the purportedly separate service agreement to be a unitary agreement. ANSWER Defendant lacks sufficient knowledge or information of the allegations in paragraph 106 to admit or deny them, and on that basis denies them.

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107.

All of the actions taken by the individual defendants herein as set forth in this

Complaint were performed within the scope of their employment thus making QWEST itself liable therefor. ANSWER No response to the allegations in paragraph 107 as they constitute legal conclusions. To the extent a response is required, Defendant denies the allegations in paragraph 107. 108. GENUITY considered the two purported separate agreements with QWEST to be

a single unitary agreement at a total cost of $260,000,000. GENUITY never expressed or had any need to purchase the equipment involved from QWEST. ANSWER Defendant lacks sufficient knowledge or information of the allegations in paragraph 108 to admit or deny them, and on that basis denies them. 109. It is thus clear that the purported separate sales and service contracts were, in fact,

a single unitary contract, that the contracts were purportedly separated so as to fraudulently recognize purported revenue that had not yet occurred for the purpose of inflating the public market value of the common stock of QWEST in violation of Colorado State Law and that these fraudulent and illegal acts occurred within the State of Colorado. ANSWER Defendant denies the allegations in paragraph 109. 110. However, in an attempt to meet the revenue projections made by senior

management of QWEST and in particular the revenue projections of the Global Business Unit of QWEST the defendants ARNOLD, EVELETH, GRAHAM, and WESTON split the single

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contract into two contracts with the first contract purporting to be a sale of equipment to Genuity for $100,000,000 and the second contract purporting to be a sale of services to Genuity for $160,000,000 over a five year period. ANSWER Defendant denies the allegations in paragraph 110. 111. By so splitting the contract into two parts QWEST then recognized the

$100,000,000 for the purported sale of equipment as immediate revenue. ANSWER Defendant had no role in the dissemination, preparation, or filing of any Qwest financial statements and thus lacks sufficient knowledge or information of the statements in paragraph 111 to admit or deny them, and on that basis denies them. 112. This immediate recognition of revenue from the purported sales portions of the

September 22, 2000 agreement did not conform to Generally Accepted Accounting Practices, hereinafter GAAP for the following reasons: a. The risk of loss with respect to the equipment purportedly "sold" to Genuity did not transfer to Genuity as is required in a normal sale. b. QWEST did not accomplish all of the terms of the purported sales agreement. c. The revenue purportedly apportioned to the equipment sale did not represent the fair value of the equipment at the time of sale. d. The purported sale of equipment was an integral part of the second purported agreement providing for services to be provided by QWEST to Genuity.

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ANSWER Defendant had no role in the dissemination, preparation, or filing of any Qwest financial statements and thus lacks sufficient knowledge or information of the statements in paragraph 112 to admit or deny them, and on that basis denies them. 113. As a result of the fraudulent and improper splitting of a single agreement into two

parts QWEST was able to recognize revenue of $100,000,000 and $20,500,000 as the cost of goods sold in the third quarter of 2000 thus substantially and fraudulently inflating reported revenues for the said quarter. ANSWER Defendant had no role in the dissemination, preparation, or filing of any Qwest financial statements and thus lacks sufficient knowledge or information of the statements in paragraph 113 to admit or deny them, and on that basis denies them. 114. In addition QWEST was able to include EBITDA of approximately $80,000,000

in its third quarter of 2000 earnings press release ANSWER Defendant had no role in the dissemination, preparation, or filing of any Qwest financial statements and thus lacks sufficient knowledge or information of the statements in paragraph 114 to admit or deny them, and on that basis denies them. 115. Furthermore, in the third quarter of 2000 QWEST also began to recognize

revenue in the third quarter of 2000 ratably over the life of the service agreement despite the fact that QWEST had not yet begun to provide services under that agreement.

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ANSWER Defendant had no role in the dissemination, preparation, or filing of any Qwest financial statements and thus lacks sufficient knowledge or information of the statements in paragraph 115 to admit or deny them, and on that basis denies them. 116. This improper recognition of revenue amounted to $2,000,000 in the third quarter

of 2000 and $8,000,000 in the fourth quarter of 2000. ANSWER Defendant had no role in the dissemination, preparation, or filing of any Qwest financial statements and thus lacks sufficient knowledge or information of the statements in paragraph 116 to admit or deny them, and on that basis denies them. 117. The above matters caused the QWEST quarterly report for the third quarter of

2000, the QWEST annual report for the year 2000, the QWEST quarterly report for the first quarter of 2001, the QWEST quarterly report for the second quarter of 2001, the QWEST quarterly report for the third quarter of 2001, and the QWEST annual report for the year 2001 to be false and misleading. ANSWER Defendant had no role in the dissemination, preparation, or filing of any Qwest financial statements and thus lacks sufficient knowledge or information of the statements in paragraph 117 to admit or deny them, and on that basis denies them. 118. contract. The splitting of the single service contract into a separate sales and service

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ANSWER Defendant notes that the statement in paragraph 118 is so vague and ambiguous that Defendant is unable to ascertain the intended meaning, and denies the statement on that basis. 119. The splitting of the GENUITY single unitary agreement into two parts having no

business purpose and known to QWEST to be performed for the sole purpose of creating fictitious $100,000,000 of revenue in the third quarter of 2000 and in particular when Genuity considered the agreements to be a single unitary agreement and had no desire to purchase the equipment involved from QWEST was a clear violation of GAAP. ANSWER Defendant had no role in the dissemination, preparation, or filing of any Qwest financial statements and thus lacks sufficient knowledge or information of the statements in paragraph 119 to admit or deny them, and on that basis denies them. 120. There was no proper evidence provided of the fair value of the equipment

purportedly sold. ANSWER Defendant denies the allegations in paragraph 120. 121. GAAP requires that any recognition of revenue from equipment sales requires

proof of the fair value of the equipment sold. In the present case there was not only no evidence of the fair value of the equipment purportedly purchased by Genuity but it was also clear that QWEST would lose money on the service agreement. The purported "fair value" was arbitrarily determined by dividing the number of units purportedly sold into the predetermined "revenue" of

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$100,000,000 creating an arbitrary price of $500.00 per unit which had no independent basis of evaluation. ANSWER Defendant had no role in the dissemination, preparation, or filing of any Qwest financial statements and thus lacks sufficient knowledge or information of the statements in paragraph 121 to admit or deny them, and on that basis denies them. 122. Furthermore defendant WESTON knew that QWEST had actually sold similar

equipment to another customer for $250.00 per unit in the first half of 2002. ANSWER Defendant denies the allegations in paragraph 122. 123. The defendants WESTON, ARNOLD, EVELETH and GRAHAM had also

received a communication from a financial analyst questioning the revenue recognition proposed. The financial analyst also questioned the unit price of $500.00 per unit provided in the Genuity sales agreement. ANSWER Defendant denies the allegations in paragraph 123 directed at Defendant. 124. An analysis of the service agreement, standing alone, was negative by

$38,000,000 and this was known to defendant EVELETH. Both defendants ARNOLD and EVELETH knew that it was not normal business practice for QWEST to enter into a contract with such a large negative present value.

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ANSWER Defendant lacks sufficient knowledge or information regarding the allegations in paragraph 124 to admit or deny them, and on that basis denies them. 125. The cost of goods sold was also fraudulently recorded as relating to the third

quarter of 2000 only after the third quarter of 2000 had ended as follows: ANSWER Defendant had no role in the dissemination, preparation, or filing of any Qwest financial statements and thus lacks sufficient knowledge or information of the statements in paragraph 125 to admit or deny them, and on that basis denies them. 126. A portion of the claimed cost of goods sold in connection with the Genuity

purported sales agreement, to wit, $17,000,000 of the total purported cost of goods of $37,500,000, actually related to goods purchased by QWEST in the fourth quarter of 2000. These goods included $7,000,000 of routers and switches necessary to make the equipment involved operational. The additional $10,000,000 involved equipment required to be used in connection with the service agreement with Genuity. ANSWER Defendant had no role in the dissemination, preparation, or filing of any Qwest financial statements and thus lacks sufficient knowledge or information of the statements in paragraph 125 to admit or deny them, and on that basis denies them. 127. Defendants ARNOLD, EVELETH, GRAHAM and WESTON knew that the

purported cost of goods sold in the third quarter of 2000 was understated because they had

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received an E-mail on September 14, 2000 from a QWEST technical accountant on the Genuity transaction calling attention to the apparent understatement involved. ANSWER Defendant denies the allegations in paragraph 127. 128. Contrary to the requirement of sale that the risk of loss is on the buyer in the

QWEST GENUITY contract the risk of loss was on QWEST. ANSWER Defendant notes that the statement in paragraph 128 is so vague and ambiguous that Defendant is unable to ascertain the intended meaning, and denies the statement on that basis. 129. GAAP requires that any sale of goods must provide that the risk of loss is on the

buyer. Contrary to this requirement the Genuity services contract transferred the risk of loss of the equipment to QWEST. The said agreement stated: "* * * QWEST shall be responsible for safeguarding and protecting such equipment against all risks of destruction or damage, failures whether functional, operational or otherwise and any costs, expenses or liabilities arising therefrom. ***" ANSWER Plaintiff makes broad and incomplete allegations regarding requirements under GAAP. In response, Defendant respectfully refers the Court to the complete set of GAAP provisions for an understanding of its contents and requirements and any attempt to characterize them is denied. Defendant admits that Qwest entered into an Out-Of-Region

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Integrated Network Solution Purchase Agreement with Genuity which states in part that "[a]s custodian of the NAS Equipment, Qwest shall be responsible for safeguarding and protecting s