Justice Department investigating Qwest

Qwest Communications today revealed that the U.S. Justice Department has opened an investigation into the carrier in the wake of the SEC’s accounting practices probe.

Qwest officials said the U.S. Attorney’s office in Denver notified the company of the investigation Tuesday. Qwest said it would fully cooperate with federal investigators, but it did not reveal what the subject of the investigation was.

Qwest has been in the government’s sights since the SEC began inquiring into the company’s finances earlier this year. The controversy, in addition to wrestling with $26 billion in debt, led to the resignation of CEO Joe Nacchio. His replacement, former Tellabs and Ameritech CEO Dick Notebaert, hasn’t found running the carrier any easier. Government probes into other companies and the scandals surrounding WorldCom and Global Crossing have driven Qwest shares to the basement. Today’s announcement further ate away at the stock price, closing at $1.77, a drop of 32%.

After the announcement, Soundview Technology Group said it believed the government was investigating Qwest’s bandwidth swaps of the last two years and would force Qwest to restate its earnings for those periods. The result could be even worse news than WorldCom’s tribulations, possibly resulting in a Chapter 11 reorganization in bankruptcy court.