In about one week, Kathy Smith will endure a bitter anniversary. Two years have passed since she was called before her bosses and fired from a lucrative job selling advertising for the Yellow Pages in Phoenix.

Smith and another salesperson named Kimberly Seagraves were fired at about the same time. Each was accused of fraud for supposedly manipulating their accounts to steal money. Each was sent from the U S West building in disgrace. Each denies any wrongdoing.

But the shame is now shifting to U S West Direct and the union that could have helped Smith and Seagraves fight for their jobs--Local 1269 of the International Brotherhood of Electrical Workers.

Smith and Seagraves believe that their union--far from looking out for their interests--participated in investigating them, trumping up false charges and then pressing for their firings.

And they believe that union officials themselves were engaged in substantial fraud of their own--fraud that the company tolerated ("A Union Made in Hell," April 7, 1993).

Now a federal investigation into the two women's claims--one of the largest and most complicated probes ever conducted by the Phoenix office of the National Labor Relations Board--is turning up evidence that Smith and Seagraves may be right.

After more than a year of investigation, during which it has subpoenaed more than 20,000 company documents and interviewed scores of current and former U S West employees and customers, the government is now preparing to take the company and union to trial.

Court filings and evidence obtained by New Times under a freedom-of-information request show that NLRB attorneys believe local IBEW officers--most notably, ranking union leader Karen Ortega and steward Phil Wheeler--have engaged in a pattern of improperly manipulating their accounts.

The incentive, the documents assert, was simple greed. By doctoring paperwork and taking advantage of lapses in U S West's accounting systems, the union officers were able to inflate their commissions and bonuses, the documents claim.

The company, the documents allege, tolerated the abuses to ensure a docile union that it could dominate, and even allowed union officers to assist in firing people like Smith and Seagraves, who challenged the cozy arrangement.

The government's allegations indicate that U S West's stockholders, advertisers and customers may have been unwitting victims of the fraudulent behavior, possibly to the tune of millions of dollars.

If union officials were improperly pumping up their commissions and bonuses, the company and its stockholders were paying the bill.

As advertising records were being manipulated, the court documents indicate, some advertisers whose accounts were handled by union officials may have been allowed to jump ahead of their competitors in the Yellow Pages, giving the favored advertisers a potentially profitable competitive advantage. In the Yellow Pages, ads running at the front of a category tend to draw more phone calls than those that follow.

In other cases, advertisers who weren't paying their bills may have been allowed to take out new advertisements, anyway, ads that ran ahead of competitors who were paying their bills.

Finally, customers who rely on the Yellow Pages when looking for services or businesses may have been misled by some advertisements. In at least one instance, for example, a page of the book contains what appear to be two separate advertisements for different businesses, when, in fact, the two companies are one and the same.

"This case could affect every consumer in the state," says one observer familiar with the investigation. "Unequivocally, there's never been a case like this one before."

The NLRB's attorneys will not discuss the investigation. Nor will those representing the company and union. U S West Direct will not talk about the charges or allow any of the employees involved--including Ortega and Wheeler--to discuss them.

Both the company and the union, in their own court filings and letters, vigorously dispute the government's arguments. In briefs and hearings on the case, they have accused the NLRB of engaging in a mammoth fishing expedition, and argue that the labor lawyers are misconstruing company documents to build a fundamentally flawed argument.

Unless the two sides agree to settle the case, the whole matter is scheduled to go to trial before an administrative law judge early next year.

Should the government prove its case, the NLRB could move to have the IBEW thrown out as the union representing Yellow Pages salespeople. It could also force U S West Direct to hire Smith and Seagraves back--with back pay--and refer any of its findings to other federal agencies for possible criminal prosecution.

Only a small fraction of the NLRB's evidence is yet available as part of the public record.

But, clearly, what began as a quest for vindication by Smith and Seagraves has mushroomed into a massive federal swipe at a tangle of alleged union corruption, corporate mismanagement and financial and consumer fraud.

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David Pasztor