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 Case No. 04-cv-00781-REB-CBS SHRINERS HOSPITALS FOR CHILDREN, a Colorado Corporation, Plaintiff, v. QWEST COMMUNICATIONS INTERNATIONAL INC., a Delaware Corporation having its principal office and place of business in Denver, et al., Defendants.

DOUGLAS K. HUTCHINS' ANSWER TO PLAINTIFF'S AMENDED COMPLAINT

Douglas K. Hutchins, by and through undersigned counsel, respectfully submits the following Answer to Plaintiff's Amended Complaint ("Complaint"), filed July 21, 2004. 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, Hutchins denies the statements. 2. This Amended Complaint is filed as of course pursuant to Rule 15(a) of the Federal Rules of Civil Procedure.

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ANSWER No response is required to the statement in paragraph 2 as it is not a factual allegation. To the extent a response is required, Hutchins 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 Hutchins 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 and having its principal office and principal place of business at 2900 Rocky Point Drive Tampa, Florida 33607. ANSWER Hutchins lacks sufficient knowledge or information of the allegations in paragraph 4 to admit or deny them, and on that basis denies them. 5. Plaintiff is considered to be a citizen of the State of Colorado by reason of its incorporation in that State. ANSWER No response is required to the allegations in paragraph 5 as they constitute legal conclusions. To the extent a response is required, Hutchins denies the statements. 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 Hutchins notes that the proper designation is Qwest Communications International Inc., and admits that, so designated, it is a corporation duly organized and existing under the laws of the State of Delaware, with its principal

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office and place of business at 1801 California Street, Denver, Colorado 80202. Hutchins admits that jurisdiction and venue are proper in this Court. Hutchins denies the remaining allegations in paragraph 6. 7. QWEST CAPITAL FUNDING INC. is a wholly owned subsidiary of the defendant QWEST. It raises capital for the defendant QWEST by the issuance of public and private bonds. It is a duly authorized agent of the defendant QWEST and the defendant QWEST is liable for any wrongdoing ANSWER Hutchins admits that Qwest Capital Funding, Inc. is a wholly owned subsidiary of Qwest Communications International, Inc. Hutchins is without sufficient information to admit or deny the allegations in the second sentence of paragraph 7 and therefore denies the same. No response is required to the allegations in the third sentence of paragraph 7 as they constitute legal conclusions. To the extent a response is required, Hutchins 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 promoted to Executive Vice President of QWEST'S GLOBAL BUSINESS UNIT. He resigned from QWEST in December 2001. ANSWER Hutchins denies that Mr. Arnold is a defendant to this action. Hutchins admits Arnold was employed at Qwest. Hutchins lacks sufficient knowledge or information of the remaining allegations 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

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is now Senior Vice-president, finance, and Chief Financial Officer of Corporate Planning and finance. ANSWER Hutchins admits Eveleth was employed at Qwest. Hutchins lacks sufficient knowledge or information of the remaining allegations 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 Hutchins denies that Mr. Graham is defendant in this action. Hutchins admits Graham was employed at Qwest. Hutchins lacks sufficient knowledge or information of the remaining allegations 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 February 2002. He was then promoted to Senior Director of Quality. He resigned in October 2002. ANSWER Hutchins admits he is a resident of Colorado but denies he is a resident of Denver. Hutchins admits he was employed by Qwest from September 1999 until October 2002, and served in various capacities, including as a Senior Director for Process Management. Except as specifically admitted above, Hutchins denies the allegations in paragraph 11. 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.

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ANSWER Hutchins denies that Mr. Hall is a defendant in this litigation. Hutchins admits Hall was employed at Qwest. Hutchins lacks sufficient knowledge or information to admit or deny the remaining allegations, 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 Hutchins admits Treadway was employed at Qwest. Hutchins lacks sufficient knowledge or information of the remaining allegations to admit or deny the remaining allegations, 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 Vice- President Sales for a division of QWEST in November of 2000. He no longer is employed by QWEST. ANSWER Hutchins admits that Walker was employed by Qwest. Hutchins lacks sufficient knowledge or information of the remaining allegations to admit or deny the remaining allegations, 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

Hutchins admits that Weston was employed by Qwest. Hutchins lacks sufficient knowledge or information of the remaining allegations to admit or deny the remaining allegations, and on that basis denies them.
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

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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 Hutchins denies the allegations in paragraph 16. 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, Hutchins denies the statements in paragraph 17. GENERAL DESCRIPTION OF THIS ACTION 18. This action is a personal, non class suit brought by a State Pension Fund which is based on claimed violations of 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 Hutchins 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 information relating to the defendant QWEST which were participated in by the individual defendants within the scope of their employment. ANSWER Hutchins 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 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.

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ANSWER Hutchins admits that Qwest filed periodic public reports, issued press releases, and engaged in other public communications. Except as specifically admitted above, Hutchins denies the allegations in paragraph 20. OTHER RELATED PENDING LITIGATION 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 Hutchins admits that there are other actions pending against it in various courts. Except as specifically admitted above, Hutchins denies the allegations in paragraph 21. 22. There are a number of purported Federal class actions against the defendant QWEST pending in this Court commencing in February 2002. These purported class actions were based on violations of the Federal Securities Laws. ANSWER Hutchins admits that twelve putative class actions have been consolidated into a consolidated securities action pending in federal district court in Colorado. The first of these actions was filed on July 27, 2001. The pending actions are "putative" because a class has been alleged, but not certified. Until and unless a class has been certified by the court, it has not been established that the named plaintiffs represent the class of plaintiffs they purport to represent. Except as specifically admitted above, Hutchins denies the allegations in paragraph 22. 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 Hutchins admits that there are other actions pending in various courts. Except as specifically admitted above, Hutchins denies the allegations in paragraph 23.

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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 Hutchins admits that a putative class action captioned Passage, et al. v. Qwest Communications International, Inc., et al. is pending in the County of Boulder District Court. Except as specifically admitted above, Hutchins denies the allegations in paragraph 24. 25. A personal non class action has been brought against QWEST by Dutch investors and is pending in this Court. ANSWER Hutchins admits that an action by Stichting Pensioenfonds ABP is pending in federal district court in Colorado. Except as specifically admitted above, Hutchins denies the allegations in paragraph 25. 26. There is a personal non class action based upon the State Securities Laws of the State of Illinois is pending in the Illinois State Courts. ANSWER Hutchins admits that an action by the State Universities Retirement System of Illinois is pending in the Circuit Court of Cook County, Illinois. Except as specifically admitted above, Hutchins denies the allegations in paragraph 26. 27. There is a purported Stockholder's Derivative action has been heretofore filed in a Colorado State Court and a proposed settlement was before that Court for approval on June 15th, 2004. Counsel for the plaintiff has been advised that the proposed settlement has been approved by the Colorado State Court. ANSWER Hutchins admits that the Denver District Court entered an Order and Final Judgment, effective June 15, 2004, approving the proposed settlement of the

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derivative lawsuit captioned Strauss v. Anschutz, et al. Except as specifically admitted above, Hutchins denies the allegations in paragraph 27. 28. There is also an action pending in this Court brought by the United States Securities and Exchange Commission in February 2003 against the defendants in this litigation. ANSWER Hutchins 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, and that this action is still pending against certain individuals. Except as specifically admitted above, Hutchins 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. Counsel for the plaintiff has been advised that a guilty plea has now been received from one of the defendants whom the jury could not agree upon and that other of those defendants upon whim the jury could not agree upon will be re-tried. ANSWER Hutchins admits that Messrs. Graham, Hall, Treadway, and Walker stood trial on corporate accounting fraud charges. Qwest further admits that Messrs. Walker and Treadway were acquitted of all charges. Qwest admits that the jury deadlocked on the charges against Mr. Hall and he later pleaded guilty to a misdemeanor charge of falsifying documents. Qwest further admits that the jury acquitted Mr. Graham on some charges, deadlocked on others, and that he later pleaded guilty to a charge of being an accessory after the fact to wire fraud. Except as specifically admitted above, Hutchins denies 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 by the defendants herein.

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ANSWER Hutchins lacks sufficient knowledge or information of the allegations in paragraph 30 to admit or deny them, and on that basis denies them. 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 at the time of the wrongdoing involved and have not yet been completely disclosed. ANSWER Hutchins 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 claims 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. ANSWER Hutchins admits that at various times in the past the Wall Street Journal has published articles in which the Company's accounting practices were discussed. Hutchins is without sufficient information to admit or deny the remaining allegations in paragraph 32 and denies them on that basis. 33. However, the mere publication of this article did cause a decline in the public market price of QWEST common stock. ANSWER Hutchins is without sufficient information to admit or deny the allegations in paragraph 33 and denies them on that basis. 34. There was a disclosure of certain of the claims set forth in this Complaint further by reason of the filing of the SEC's Complaint 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.

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ANSWER Hutchins 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. Hutchins is without sufficient information to admit or deny the remaining allegations in paragraph 34 and denies them on that basis. 35. The failure to make a complete disclosure of the wrongs involved by Qwest causes certain of the relevant Statute of Limitations to be "tolled" until a complete disclosure of the wrongs involved is made.

ANSWER
Hutchins 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 constitute 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
Hutchins 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 No response is required to the statements in paragraph 37 as they are not factual allegations. To the extent a response is required, Hutchins denies the statements in paragraph 37.

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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. ANSWER No response is required to the statements in paragraph 38 as they are not factual allegations. To the extent a response is required, Hutchins denies the statements 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 statements in paragraph 39 as they are not factual allegations. To the extent a response is required, Hutchins denies the statements in paragraph 39. THE LOSSES SUSTAINED BY THE PLAINTIFF BY REAONS 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 purchase or sale of the 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. ANSWER Hutchins denies the allegations in the first sentence of paragraph 40. Hutchins lacks sufficient knowledge or information of the remaining allegations in paragraph 40 to admit or deny them, and on that basis denies them.

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41. The time period of the transactions made by the plaintiff in the securities of QWEST and shown in EXHIBIT A herein commenced on April 19th. 2000 to February 2, 2002. The additional losses of the plaintiff, if any, from February 2002 to June 2004 are presently being computed and will subsequently disclosed to the defendants in an appropriate manner. ANSWER Hutchins 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, from the period commencing from February 2002 to June 2004 will be subsequently appropriately disclosed. ANSWER Hutchins 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. ANSWER Hutchins 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 were made through the following investment advisers whose names are set forth herein as follows: Name of Investment Adviser 1. Bank One Kentucky, N.A. Contact Person Donald Secrest 859-231-2434 Mariene Yee 808-525-7120 Mark Majka 617-478-7211 Tonya Toth

2. First Hawaiian Bank

3. Harbor Capital Management

4. Invesco Capital Management

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404-439-3138 5. Key Trust Co. of Maine 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

6. Mellon Bank N.A. ` 7. NCB Dayton

8. Pacific Century

9, Wells Fargo Bank

10. State Street

ANSWER Hutchins 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: Name of Investment Advisor Type of Bond Purchased By Plaintiff Contact Person

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1. Fleet National Bank

Private Placement Qwest Capital Funding, Inc. 7.25% Private Placement Qwest Capital Funding, Inc. NT 7.25% due 2/15/2011 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 144A 7.25% due 2/15/2011 Private Placement Qwest Capital Funding NT 144A 7.25%

Bill Crosswhite 860-952-7255

2. Fleet National Bank

Bill Crosswhite 860-952-7255

3. Harbor Capital Management

Mark Majka 614-478-7211 John Dagenhard 412-234-5962

4. Mellon Bank NA

5. Mellon Bank NA

John Dagenhard 412-234-5962 John Dagenhard 412-234-5962 Robert Johnson 312-630-8091

6. Mellon Bank NA

7. Northern Trust Company

8. Northern Trust Company Qwest Capital Funding NT 144A 7.25% due 2/15/2011 9. PNC 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%

Robert Johnson 312-630-8091

Michael Ball 215-585-5573 Robert Johnson 312-630-8091

10. Revised Retirement

11. Revised Retirement

Robert Johnson 312-630-8091 Jim Foster 404-827-6987

12. Trusco Capital Management Private Placement Qwest Capital Funding 7.25% 13. Trusco Capital Management Private Placement Qwest Capital Funding

Jim Foster 404-827-6987

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GTD NT 144A 7.75% 14. Wells Fargo Bank Qwest Capital Funding 7.9% Robert Bissell 213-253-3180

ANSWER Hutchins lacks sufficient knowledge or information of the allegations in paragraph 45 to admit or deny them, and on that basis denies them. 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 Hutchins 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, Hutchins 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 the reported revenue, earnings, and revenue and earnings growth set forth in the information issued by such listed companies. ANSWER Hutchins is without sufficient information to admit or deny the allegations in paragraph 47 and denies them on that basis. 48. Also significant are the projections of the future earnings and revenues of such listed companies. ANSWER Hutchins is without sufficient information to admit or deny the allegations in paragraph 48 and denies them on that basis. 49. The public market value of QWEST common stock and bonds 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.

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ANSWER Hutchins 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 Hutchins denies the allegations in paragraph 50. 51. In connection with the purchase of the common stock and bonds 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 Hutchins 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 employment. ANSWER Hutchins denies the allegations in paragraph 52. 53. Plaintiff purchased the said QWEST common stock and bonds 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 Hutchins 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 Hutchins denies the allegations in paragraph 54.

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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 specific losses actually sustained by the plaintiff in this case. ANSWER Hutchins 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. ANSWER Hutchins denies the allegations in paragraph 56. 57. The defendant QWEST through its senior management personnel acting within the scope of their employment, knew, should have known, negligently, grossly negligently or recklessly failed to discover that said representations were false and misleading. ANSWER Hutchins 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 Hutchins 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 No response is required to the statements in paragraph 59 as they are not factual allegations. To the extent a response is required, Hutchins denies the statements in paragraph 59.

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60. The defendant QWEST provides telecommunications and internet services to its customers. ANSWER Hutchins admits the allegations in paragraph 60. 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 Hutchins admits that on July 18, 1999, the Company issued a press release which announced that Qwest and U S WEST, Inc. entered into an "Agreement and Plan of Merger (the "Merger Agreement") providing for, among other things, the merger of U S WEST with and into Qwest, with Qwest as the surviving corporation." Hutchins further admits that the merger with U S WEST was consummated on June 30, 2000. Except as specifically admitted above, Hutchins denies the allegations in paragraph 61. 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 Hutchins denies the allegations in paragraph 62. 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 Hutchins denies the allegations in the first sentence of paragraph 63. Hutchins admits that the company issued a press release on April 19, 2000. Hutchins

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further admits that the company filed a Form 10-Q with the Securities and Exchange Commission on May 12, 2000. Except as specifically admitted above, Hutchins denies the allegations in paragraph 63. 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 Hutchins denies the allegations in paragraph 64. 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 second quarter of 2000 and the six months of 2000. The information set forth in the said press release was confirmed in a 10-Q report filed with the SEC on August 11, 2000. ANSWER Hutchins denies the allegations in the first sentence of paragraph 65. Hutchins admits that the Company issued a press release on July 19, 2000. Hutchins further admits that the Company filed a Form 10-Q with the SEC on August 11, 2000. Except as specifically admitted above, Hutchins denies the allegations in paragraph 65. 66. The press release and the 10-Q report set forth purported revenues of for the second quarter of 2000 of 1.28 billion dollars. ANSWER Hutchins denies the allegations in paragraph 66. 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 set forth in the said press release was confirmed in a 10-Q report filed with the SEC on November 18, 2000.

ANSWER Hutchins denies the allegations in the first sentence of paragraph 67. Hutchins admits that the Company issued a press release on October 24, 2000. Hutchins

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further admits that the Company filed a Form 10-Q with the SEC on November 18, 2000. Hutchins respectfully refers the Court to the entire documents for a complete understanding of their content. Except as specifically admitted above, Hutchins denies the allegations in paragraph 67. 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. ANSWER Hutchins denies the allegations in paragraph 68. 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 Hutchins denies the allegations in the first sentence of paragraph 69. Hutchins admits that the Company issued a press release on January 24, 2001. Hutchins further admits that the Company filed a form 10-K with the SEC on March 16, 2001. Except as specifically admitted above, Hutchins denies the allegations in paragraph 69. 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 Hutchins admits that the January 24, 2001 press release and the March 16, 2001 Form 10-Q reported revenue of $5.02 billion for the fourth quarter of 2000. Hutchins denies the allegations in the second sentence of paragraph 70. Except as specifically admitted above, Hutchins denies the allegations in paragraph 70. 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

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Company for the first quarter of 2001. The information contained in the said press release was confirmed in a 10-Q report filed with the SEC on May 15,2001. ANSWER Hutchins denies the allegations in the first sentence of paragraph 71. Hutchins admits that the Company issued a press release on April 24, 2001. Hutchins further admits that the Company filed a Form 10-Q with the SEC on May 15, 2001. Except as specifically admitted above, Hutchins denies the allegations in paragraph 71. 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 Hutchins denies the allegations in paragraph 72. 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 Hutchins denies the allegations in the first sentence of paragraph 73. Hutchins admits that the Company issued a press release on July 24, 2001. Hutchins further admits that the Company filed a Form 10-Q with the SEC on August 14, 2001. Except as specifically admitted above, Hutchins denies the allegations in paragraph 73. 74. The said press release and 10-Q report set forth purported revenues for the period involved. These reported revenues were false and misleading as will be set forth hereinafter in this Complaint. ANSWER Hutchins denies the allegations in paragraph 74. 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

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contained in the said press release was confirmed in a 10-Q report thereafter filed with the SEC on November 14, 2001. ANSWER Hutchins denies the allegations in the first sentence of paragraph 75. Hutchins admits that the Company issued a press release on October 31, 2001. Hutchins further admits that the Company filed a Form 10-Q with the SEC on November 14, 2001. Except as specifically admitted above, Hutchins denies the allegations in paragraph 75. 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 Hutchins is without sufficient information to admit or deny the allegations in paragraph 76 and denies them on that basis. 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. ANSWER Hutchins denies the allegations in paragraph 77. 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 Hutchins admits that it issued a press release on January 29, 2002, which stated in part that "[f]or the full year [2001], reported revenue increased approximately four percent to $19.74 billion." Hutchins denies the allegations in the second sentence of paragraph 78. Except as specifically admitted above, Hutchins denies the allegations in paragraph 78. 79. On February 13, 2002 the Wall Street Journal claimed revelation that various mechanisms were used to improperly enhance QWEST's financial results.

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ANSWER Hutchins admits that on February 13, 2002, the Wall Street Journal published an article in which the Company was discussed. Except as specifically admitted above, Hutchins denies the allegations in paragraph 79. 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 Hutchins denies the allegations in paragraph 80. 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 Hutchins denies the allegations in paragraph 81. 82. The individual defendants are liable to the plaintiff because they committed wrongful acts which were committed within the scope of their employment. ANSWER Hutchins 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 Hutchins admits that its common stock has been traded on the New York Stock Exchange since January 2000. No response is required to the allegations concerning "the public determination of the market value" because they are legal conclusions to which no response is required. Except as specifically admitted above and to the extent a response is required, Hutchins denies the remaining allegations in paragraph 83.

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84. Another factor influencing the pubic market value of common stocks are purported "earnings growth". ANSWER Hutchins is without sufficient information to admit or deny the allegations in paragraph 84 and denies them on that basis. 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 Hutchins denies the allegations in paragraph 85. 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 Hutchins 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 Hutchins 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 further that failure to meet such revenue projections could lead to dismissal of the executive or employee involved. ANSWER Hutchins 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:

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ANSWER Hutchins lacks sufficient knowledge or information of the allegations 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 Hutchins lacks sufficient knowledge or information of the allegations in paragraph 90 to admit or deny them, and on that basis denies them. 91. The genesis of this contract was the following:

ANSWER Hutchins lacks sufficient knowledge or information of the allegations in paragraph 91 to admit or deny them, and on that basis denies them. 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 Hutchins lacks sufficient knowledge or information of the allegations in paragraph 92 to admit or deny them, and on that basis denies them. 93. contract. Negotiations then ensued between Genuity and QWEST for a new

ANSWER Hutchins lacks sufficient knowledge or information of the allegations in paragraph 93 to admit or deny them, and on that basis denies them. 94. During these negotiations between QWEST and Genuity it was contemplated initially that QWEST would own and operate the equipment to supply the services since Genuity did not wish to own or operate the equipment. ANSWER Hutchins lacks sufficient knowledge or information of the allegations in paragraph 94 to admit or deny them, and on that basis denies them.

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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 Hutchins lacks sufficient knowledge or information of the allegations in paragraph 95 to admit or deny them, and on that basis denies them. 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 Hutchins lacks sufficient knowledge or information of the allegations in paragraph 96 to admit or deny them, and on that basis denies them. 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 Hutchins lacks sufficient knowledge or information of the allegations in paragraph 97 to admit or deny them, and on that basis denies them. 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 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 Hutchins lacks sufficient knowledge or information of the allegations in paragraph 98 to admit or deny them, and on that basis denies them. 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.

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ANSWER Hutchins 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. ANSWER Hutchins 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 Hutchins lacks sufficient knowledge or information of the allegations in paragraph 101 to admit or deny them, and on that basis denies them. 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 Hutchins lacks sufficient knowledge or information of the allegations in paragraph 102 to admit or deny them, and on that basis denies them. 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 Hutchins lacks sufficient knowledge or information of the allegations in paragraph 103 to admit or deny them, and on that basis denies them. 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.

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ANSWER Hutchins lacks sufficient knowledge or information of 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 Hutchins lacks sufficient knowledge or information of the allegations in paragraph 105 to admit or deny them, and on that basis denies them. 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 Hutchins lacks sufficient knowledge or information of the allegations in paragraph 106 to admit or deny them, and on that basis denies them. 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, Hutchins lacks sufficient knowledge or information of the allegations in paragraph 107 to admit or deny them, and on that basis denies them. 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.

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ANSWER Hutchins 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 Hutchins lacks sufficient knowledge or information of the allegations in paragraph 109 to admit or deny them, and on that basis denies them. 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 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 Hutchins lacks sufficient knowledge or information of the allegations in paragraph 110 to admit or deny them, and on that basis denies them. 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 Hutchins lacks sufficient knowledge or information of the allegations 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.

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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. ANSWER Hutchins lacks sufficient knowledge or information of the allegations 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 Hutchins lacks sufficient knowledge or information of the allegations 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 Hutchins lacks sufficient knowledge or information of the allegations 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. ANSWER Hutchins lacks sufficient knowledge or information of the allegations 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 Hutchins lacks sufficient knowledge or information of the allegations in paragraph 116 to admit or deny them, and on that basis denies them.

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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 Hutchins lacks sufficient knowledge or information of the allegations in paragraph 117 to admit or deny them, and on that basis denies them. 118. The splitting of the single service contract into a separate sales and service contract. ANSWER Hutchins lacks sufficient knowledge or information of the allegations in paragraph 118 to admit or deny them, and on that basis denies them. 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 Hutchins lacks sufficient knowledge or information of the allegations 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 Hutchins lacks sufficient knowledge or information of the allegations in paragraph 120 to admit or deny them, and on that basis denies them. 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 $100,000,000 creating an arbitrary price of $500.00 per unit which had no independent basis of evaluation.

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ANSWER Plaintiff makes broad and incomplete allegations regarding requirements under GAAP in the first sentence of paragraph 121. In response, Hutchins respectfully refers the Court to the complete set of GAAP provisions for an understanding of its contents and requirements. Hutchins lacks sufficient knowledge or information of the remaining allegations 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 Hutchins lacks sufficient knowledge or information of the allegations in paragraph 122 to admit or deny them, and on that basis denies them. 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 Hutchins lacks sufficient knowledge or information of the allegations in paragraph 123 to admit or deny them, and on that basis denies them. 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. ANSWER Hutchins lacks sufficient knowledge or information of 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:

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ANSWER Hutchins lacks sufficient knowledge or information of the allegations 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 Hutchins lacks sufficient knowledge or information of the allegations in paragraph 126 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 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 Hutchins lacks sufficient knowledge or information of the allegations in paragraph 127 to admit or deny them, and on that basis denies them. 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 Hutchins lacks sufficient knowledge or information of the allegations in paragraph 129 to admit or deny them, and on that basis denies them. 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. * * * "

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ANSWER Hutchins lacks sufficient knowledge or information of the allegations in paragraph 129 to admit or deny them, and on that basis denies them. 130. Despite the fact that the defendants ARNOLD, EVELETH, GRAHAM and WESTON knew that the risk of loss of the goods involved was not on the buyer they nevertheless caused the improper recognition of $100,000,000 of purported revenue during the third quarter of 2000. GAAP was violated by the GENUITY purported sale contract because GENUITY had no obligation to pay for the services involved with respect to the equipment until the equipment was delivered and operational. ANSWER .Hutchins lacks sufficient knowledge or information of the allegations in paragraph 130 to admit or deny them, and on that basis denies them. 131. Under the services agreement QWEST was required to provide services on 140,000 of the 200,000 units purportedly sold to Genuity by September 30, 2000. However Genuity was not required to pay QWEST until the services were provided on this equipment beginning on August 2001. Defendant WESTON was well aware services would not be provided on the equipment purportedly sold to Genuity by the third quarter of 2000. However purported revenue from this transaction was booked by the said third quarter of 2000. ANSWER Hutchins lacks sufficient knowledge or information of the allegations in paragraph 131 to admit or deny them, and on that basis denies them. 132. It was thus improper to recognize revenue from this agreement in the third quarter of 2000. ANSWER Hutchins lacks sufficient knowledge or information of the allegations in paragraph 132 to admit or deny them, and on that basis denies them. 133. Defendant WESTON was well aware of this fact but improperly recognized revenue of $100,000,000 in the third quarter of 2000. ANSWER

Hutchins lacks sufficient knowledge or information of the allegations in paragraph 133 to admit or deny them, and on that basis denies them.

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THE FINANCIAL IMPACT OF IMPROPERLY CLAIMING $100,000,000 OF REVENUE IN THE THIRD QUARTER OF 2000. 134. Because of the false statements relating to revenue under the Genuity agreement, the 10-Q SEC report for the third quarter of 2000 and the 10-K SEC report for the year 2000 contained material false and misleading financial information which affected the market value of the common stock of QWEST and thus caused inflation of the purchase price of the said common stock of QWEST purchase