CenturyLink Faces Securities-Fraud Suit Tied to Scam Claims
CenturyLink Inc.—trying to seal a $34 billion deal to buy Level 3 Communications Inc., facing a $12 billion consumer fraud case, and fighting a lawsuit by the Minnesota attorney general—got some more bad news last week in the form of a securities-fraud class action.
The telecom firm’s troubles began this summer when an ex-employee sued for wrongful termination. Heidi Heiser, who worked as a customer service and sales agent, claimed she was fired after notifying Chief Executive Officer Glen Post of an alleged sales scheme that left customers on the hook for services they didn’t want. Shares of CenturyLink fell almost 5 percent as news reports of the allegations spread (the company has denied any wrongdoing). First Heiser’s accusations sparked the consumer fraud action.
Now comes the investor litigation.
Bondholder Inter-Marketing Group sued last week over a drop in the value of CenturyLink notes following revelations of the alleged sales scam. The proposed class action, filed in Manhattan federal court, claims the company’s bond prices were “artificially inflated” and that once the former employee’s claims came to light, investors “suffered significant losses.”
The investor alleged that the telecom company failed to “disclose material adverse facts about the company’s business, operations, and compliance policies.” William Federman, a lawyer for Inter-Marketing Group, said “when news of the facts became public, the notes fell approximately 6 percent in one trading day. We intend to pursue the action on behalf of the noteholders to recover their losses.”
The complaint comes as the Monroe, La., company is in the final stages of gaining approval for its tie-up with Level 3. The union would put CenturyLink up against such powerhouses as AT&T Inc. in bidding to provide communications services to businesses. The deal received approval from the Justice Department on Oct. 2 under conditions that included the sale of certain fiber-optic network assets in at least three states where it would have dominated. Post, the CEO, has urged the Federal Communications Commission to sign off, saying further delays would be costly.
Whether the new layer of litigation over the fraud allegations and their fallout will affect the government’s decision is unclear.
In her lawsuit, filed before Heiser’s claims were made public, Minnesota Attorney General Lori Swanson accused CenturyLink of consumer fraud and deceptive trade practices. “CenturyLink has regularly misquoted the price of its internet and television services to Minnesota consumers,” according to her complaint. “Shopping for internet and cable TV service isn’t easy if companies don't give straight answers about the prices they will charge,” Swanson said in a statement.
Mark Molzen, a spokesman for CenturyLink, said the company hired a law firm to conduct an independent review of the allegations. “If we find we have made mistakes that we haven’t addressed, we will fairly address them,” he said.
“However speculative or unfounded we think these claims may be,” Molzen said, “we are treating them very seriously.”