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Banks call for KPNQwest scrutiny

The bankrupt European network remains live for now, but it could close at any moment as a court order leaves trustees with no money to pay staff.

The epic bankruptcy saga of KPNQwest became still more entangled on Monday as banks joined the clamor for an investigation of the service provider's accounts.

KPNQwest's network, which carries a quarter of Europe's Internet traffic, remains live for now, but could close at any moment as a court order on Friday left the trustees with no money to pay staff.

The banking consortium will demand a court inquiry into discrepancies in KPNQwest's accounts, according to the Financial Times. The consortium, which includes Citigroup, ABN AMRO, Fortis, Barclays, Bank of America, Dresdner Kleinwort Wasserstein and Deutsche Bank, loaned KPNQwest $513 million (525 million euros) when it bought a previously failed service provider, GTS.

KPNQwest's purchase of GTS, which included the Ebone European backbone network, was completed in March, only weeks before KPNQwest declared itself bankrupt. The consortium alleges that KPNQwest lied about income from its two founders--KPN of the Netherlands and Qwest Communications International of the United States--to make its services revenue look bigger than it was.

This call joins that of KPNQwest bondholders who have made the same demand of KPN and Qwest. Former KPNQwest Chief Executive Jack McMaster has denied the allegations.

"The network is still operating, and there is still a sale process going on," said a source close to the company. But every aspect of the case is now shrouded in uncertainty after Friday's court ruling.

Around $19.5 million had been promised by KPNQwest customers to keep the network running until the end of June, but the banks that collected that "lifeboat" money refused to hand it over, and the Dutch court on Friday upheld this action.

Now the likelihood is that the bandwidth that Ebone leases from service providers could be turned off within the next few days. According to Graham Kinsey, convenor of the staff at the Ebone network in Belgium, the 40 people in the Belgian network center are the only ones out of around 200 who can expect any payment. "I'm sorry for field engineers in England. They have been paying money out of their own pocket, borrowing money to keep the network on the road."

ZDNet U.K.'s Peter Judge reported from London.