Another chapter in a book that never ends
By Al Lewis
Dow Jones Newswires
Denver Post
Wednesday, September 24, 2008

Former WorldCom chief executive Bernie Ebbers is serving 25 years in prison.

Enron's Ken Lay is in his grave.

Joe Nacchio, the former CEO of Denver-based Qwest, is still on trial for his alleged crimes of the same era.

Nacchio was convicted in April 2007 on 19 counts of illegal insider trading for transactions that occurred as far back as 2001.

In March, the 10th Circuit Court of Appeals in Denver ordered a new trial after finding that the trial judge improperly excluded expert testimony.

On Thursday, a broader panel of appellate judges will review that decision.

Much of what Nacchio, Ebbers and Lay did was proclaim that their companies were performing well, even though they were really imploding.

We have seen this misleading behavior again from the top executives of every decimated investment bank.  We've seen it from our leaders, too.  Treasury Secretary Henry Paulson, Federal Reserve Chairman Ben Bernan ke, Securities and Exchange Commission Chairman Christopher Cox, President Bush — they all told us the banking system was safe, even as they scrambled up bailouts.

Is delusional optimism a crime?  Should every cheerleader be tried?

It's great drama to watch them squirm in court.  But shouldn't we also hear their defense?

Nacchio never got to put on much of his defense.

He called one expert witness: Daniel Fischel, a Northwestern University law professor who had testified on behalf of savings-and-loan kingpin Charles Keating as well as Enron's Lay and Jeff Skilling.

Fischel was to address whether the information Nacchio had in his skull as he traded his stock fit the legal standard of "material," which is probably the most crucial question in an insider-trading case.

The appellate court ruled Fischel's testimony was improperly excluded, and it will revisit this question again Thursday.

And what was this material information?  Prosecutors alleged it was Nacchio's knowledge that his own revenue projections would not come true.

They argued that as Nacchio boasted about Qwest's prospects, he sold $52 million worth of stock.  It was the old pump and dump.  But then, Nacchio had so much stock, he was almost always dumping, mostly through pre-announced trading programs.

The jury never really heard why Nacchio boasted so loudly about Qwest's prospects, because much of Nacchio's defense was deemed classified.

Nacchio claimed he expected Qwest to meet its aggressive growth targets with government contracts to build cyber-warfare-resistant networks.

In court filings that were unsealed after his trial, Nacchio said he met with top officials of the National Security Agency in Fort Meade, Md., on Feb. 27, 2001.  Much of these filings have been redacted, but they cite a system that NSA could use to "tap any phone line and to monitor any digital transfer of information."

Nacchio's defense would have gone like this:  The government wanted to tap Qwest's phone lines without a warrant;  Nacchio said no, so the government retaliated by killing billions' worth of top-secret contracts and slapping Nacchio with insider-trading charges after his company subsequently collapsed.

It became, as some have said about Bear Stearns, a run on the bank.

Al Lewis: 201-938-5266 or al.lewis@dowjones.com

http://www.denverpost.com/allewis/ci_10541318