Qwest has spent $75m over the past year for outside attorneys alone and has hired eight of the highest-price law firms in the country, the newspaper said, citing people familiar with the matter.
Qwest hopes to offset the costs with $400m of insurance for its officers and directors' legal fees and any settlements, the Wall Street Journal reported.
But at least eight of the insurers claim that the company misled them about the status of its accounting when they issued the policies. They wish to rescind coverage, leaving the shareholders to deal with the mounting legal fees, the paper said.
A company spokesman was not immediately available for comment.
The US Justice Department has alleged that four Qwest executives devised a scheme to falsely recognise more than $33m of additional revenue in the second quarter of 2001, when the company was contending with weak sales and management placed pressure on subordinates to achieve specified revenue targets.