Earlier this week, Qwest disclosed that it had improperly accounted for more than $1.1bn over several years.
A settlement could ease the company's escalating financial difficulties. However, talks are in the earliest stages and a settlement is still far from certain.
The SEC has been investigating the manner in which Qwest accounted for sales of optical capacity and telecommunication equipment since March. Qwest also faces a criminal investigation by the United States Attorney's office in Denver.
Qwest provides local and long-distance phone services in the US. The company is struggling under a debt load of about $26.6bn, and over the past two months it has named a new chief executive and a new chief financial officer. In late May it dropped Arthur Andersen as its auditor.
Neither Qwest nor the SEC could be reached for comment.