Ex-VP possible target in stock deal inquiry
By Jeff Smith and David Milstead
Rocky Mountain News
Saturday, February 18, 2005

Federal prosecutors are targeting a former senior executive at Qwest Communications for his alleged role in getting the company and its executives low-priced stock from suppliers in exchange for their business.

Three sources confirmed Thursday that the U.S. attorney's office in Denver has been threatening to seek an indictment against Marc Weisberg, Qwest's former executive vice president of business development.  His attorney confirmed he is a target.
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The high-pressure squeeze on Weisberg comes as investigators are scrambling to wrap up their probe of the Denver telecommunications company and prosecute the highest-level executives possible, according to numerous sources.

Prosecutors are trying to pressure Weisberg for information on former Qwest CEO Joe Nacchio, one source said.  Nacchio, CEO of Qwest from its 1997 initial public offering through 2002, led the company when it booked more than $2 billion of revenue that has since been erased.

The Securities and Exchange Commission, in settling civil charges against the company, compared the Nacchio-era Qwest to a heroin junkie addicted to false accounting.  Nacchio denies wrongdoing.

Gary Lozow, Weisberg's attorney, confirmed Thursday his client is a target of the investigation.

"I can tell you that there's no indictment that I know about," Lozow said.  "I'm from the old school.  I'll believe it when I see it."

Jeff Dorschner, spokesman for the U.S. attorney's office in Denver, declined to comment.

In recent months, investigators have been focusing on both the vendor stock deals and on Qwest's allegedly misleading financial statements to investors.

Weisberg, 47, of Cherry Hills Village, was one of Nacchio's senior lieutenants, in charge of corporate development, until leaving Qwest in October 2001.  He made $29 million from Qwest stock in his time there.

Weisberg was president of a Qwest subsidiary called U.S. Telesource.  A search of Qwest annual reports with the SEC gives no explanation of what the subsidiary did.

Instead, U.S. Telesource turns up in numerous SEC filings by Qwest vendors.  The filings include contracts in which U.S. Telesource purchased stock in the vendor in exchange for Qwest business.  To date, no Qwest vendor is known to be the target of SEC action or criminal prosecution.

Weisberg himself signed U.S. Telesource stock-purchase deals with companies like Jato Communications, Critical Path and eVentures Group.  In the case of eVentures, later to be known as Nova Networks, the June 2000 deal involved Qwest selling capacity on its fiber-optic network in exchange for cash and stock - a practice at the heart of the accounting allegations against Qwest.

It is Weisberg's role with a telecommunications equipment company called Tellium that especially may be at issue.

In September 2000, Tellium announced a deal with Qwest.  At the same time, it issued warrants to U.S. Telesource and also allowed seven "officers and affiliates" of Qwest to buy $10 million worth of Tellium stock.

Days later, boosted by news of the Qwest contract, Tellium filed to sell stock to the public.  While Tellium rocketed on its first day of trading in May 2001, the stock sank almost as quickly, and it's not clear any Qwest insider got out in time.

In late 2003, Tellium disclosed in a federal filing that its relationship with Qwest had been turned over to a federal grand jury.

Weisberg typically did deals both on behalf of Qwest as well as taking a slice for himself, according to a source close to Qwest.

An internal investigation by Qwest found he had acted in Qwest's best interest in all but one deal, according to the source.  The source didn't disclose whether that deal was Tellium.

Last year, Weisberg struck an agreement with prosecutors that would involve no jail time, but acting U.S. Attorney William Leone nixed the deal and told Weisberg prosecutors were going for an indictment against him, the source said.

Leone said, " 'You're going to jail unless you give me dirt on Joe,' " the source said.