Anschutz comes under scrutiny

DENVER (AP) -- Phil Anschutz, founder and largest shareholder of Qwest Communications, the publicly held telecom titan based in Denver.

Phil Anschutz, co-owner of Qwest Digital Media, a private joint venture with Qwest that seemed to hold unlimited promise in Internet video distribution.

Phil Anschutz, venture capitalist who bet $80 million or more on dozens of telecom startups -- most of them eager to sell their breakthrough gear and software to Qwest and its counterparts.

Phil Anschutz, favored recipient of tens of thousands of shares in initial public offerings in companies clamoring for Qwest business for their new, untested products.

In the go-go years of the telecom boom and continuing after its bust, Anschutz seemed to be everywhere, as Qwest's board chairman, as Qwest's partner, as an investor in start-ups that circled Qwest in search of a boost from association with the telecom giant.

The market's crash hit hard at Qwest, which has come under still- unconcluded investigations by the Securities and Exchange Commission and the Justice Department because of questionable accounting practices and extraordinary executive compensation.

Until now, most of the attention on Anschutz has focused on the $2 billion he made by selling Qwest stock before the company's accounting troubles came to light and Qwest's shares plummeted in value.

Less known are the many ways that Anschutz's private companies positioned themselves to add to his

profits through ventures that sought contracts, capital or credibility from Qwest.

The collapse of the market has laid bare the many entanglements between Qwest and Anschutz's companies.

Through decisions made by Anschutz or the executives who run his investments, he:

-- Entered a joint venture with Qwest in a video storage and distribution company called Qwest Digital Media that would eventually cost Qwest stockholders $94 million when the venture folded in February 2002. In a key transaction that narrowed his losses, Qwest bought a portion of his stake for nearly $50 million in June 2000, three months after the stock market had soured.

-- Invested in KPNQwest, a joint venture between Qwest and a Dutch telecom company, and bought bonds in Global Telesystems, a European fiber-optic company that went bankrupt and was acquired by KPNQwest. The KPNQwest purchase led to a lawsuit by GTS shareholders and an unsuccessful request to Congress to investigate Anschutz's role in the deal.

-- Invested millions of dollars in young companies that wanted Qwest business. Of 33 Anschutz-backed companies examined by the Rocky Mountain News, 12 eventually counted Qwest as a customer, received investments from Qwest or its affiliates or had Qwest test their products. Anschutz officials say that they count only 11, not 12, companies doing business with Qwest because one company did business only with KPNQwest, a Qwest affiliate.

On some venture deals, Anschutz's returns were huge. One, Juniper Networks, netted him at least $55 million in stock profits. On others, Anschutz has lost or stands to lose his entire investment if the market doesn't bounce back and rejuvenate the companies.

-- Profited from hot initial public offerings of stock in companies such as the defunct Rhythms NetConnections, a Qwest vendor whose shares tripled on the first day of trading.

The New York state attorney general has sued several executives, including Anschutz and former Qwest CEO Joe Nacchio, saying brokerage Salomon Smith Barney tried to win investment business by giving them hot IPO shares. In this climate, Anschutz's companies have decided not to accept any more IPO stock allocations, according to a top Anschutz official who was authorized to speak for Anschutz on the condition that he not be named.

But as for the past, the official offered no apologies. The IPO shares were irrelevant to business decisions, he said. "You have to understand that brokers are giving it to you to curry favor," he said. "It's just like taking you to Pebble Beach (to golf). . . . I mean rich people get more.

"It's not fair. But it's rational."

Anschutz, long one of the richest men in Colorado and one of its most prolific philanthropists, built his fortune from oil fields and railroads and now concentrates on entertainment and telecommunications.

His stake in Qwest and four other public companies -- Forest Oil, Pacific Energy Partners, Regal Entertainment Group and Union Pacific - - is worth about $3.2 billion, according to publicly available information.

That sum does not include holdings such as the Staples Center in Los Angeles, several pro soccer teams, Colorado ranchland and downtown Denver real estate, including a 38-story office tower where Qwest rents space.

For Qwest and other companies that didn't evaporate in the telecom meltdown, a harsh new climate of scrutiny has emerged. Government regulators and analysts are evaluating corporate practices that once were routine, if not publicly acknowledged -- accepting numerous, large allocations of IPO stocks in startups, handing out massive amounts of company stock options as executive compensation, counting money as revenue before it materialized.

Hoping to restore investor confidence in the market, regulators are scrutinizing corporate boards for any sign of self-dealing and rewriting ethics rules to minimize possible conflicts.

Nacchio, who declined to comment, left Qwest and was replaced in June by Richard Notebaert, now Qwest's chairman and chief executive. Under Notebaert's management, Qwest recently has tightened its own code of conduct. The company now bars employees from making any investment, accepting any stock, having an association or entering into any activity "that may cause others to reasonably doubt their judgment or integrity."

The charter governing directors' conduct also is being revised, but Qwest wouldn't divulge the details. In November, Qwest voluntarily offered disclosures on a number of director-related transactions, including the KPNQwest deal, saying the company wanted to be more open with its investors.

The Anschutz official said Anschutz and his companies have followed all the rules and disclosure requirements of the SEC and have carefully avoided any potential conflicts of interest.

But some experts say his labyrinth of business relationships can create the appearance of competing interests. His responsibilities as a director of publicly held Qwest could be at odds with his stake as a private investor in companies doing business with Qwest or profiting from connections to it, they say.

Outside Anschutz's involvement in large joint ventures such as Qwest Digital Media and KPNQwest, private venture capital investments by his companies amounted to "peanuts," too small to warrant his personal attention, the official said.

Most investments were passive, he said, meaning Anschutz officials didn't manage the companies or serve on their boards.

In the venture capital world, "we never invested in a company that was currently doing business with Qwest," the Anschutz official said. And if those companies later got involved with Qwest, neither Anschutz nor his company officials had anything to do with the decision, he said.

"We put no pressure on anybody at Qwest to look at these companies," the official said.

Most of the companies with investments from Anschutz firms and ties to Qwest wrote letters at the request of Anschutz officials, who sent them to the News. The letters say no one at the investment firms intervened for them with Qwest.

Executives at two of those companies did say in their letters that Anschutz Investment Co. provided some initial introductions to Qwest executives.

Jim Monaghan, a spokesman for Anschutz, said giving a name and number of a possible contact is standard business and doesn't mean that Anschutz officials played more than a passive role in the investments.

The bottom line, the unnamed Anschutz official said, is that if multi-industry executives like Anschutz can't have overlap in their business dealings, a valuable source of venture capital will be cut off, stifling entrepreneurship.

Some experts agree that such overlaps are difficult to avoid, especially among businesspeople who serve as directors of large, high- growth companies.

A News survey of federal filings by the top 50 companies in Colorado last summer found at least 18 had engaged in business transactions with firms in which their executives or directors held stakes.

Although Anschutz's position until recently as Qwest board chairman gave him a uniquely powerful role, other Qwest directors also had ties to companies that did business with Qwest.

Copyright C 2003 Deseret News Publishing Co.
Provided by ProQuest Information and Learning Company. All rights Reserved.