Prosecutors Fault Key
Defense Tactic Of Qwest Ex-CEO
By SHAWN YOUNG
Staff Reporter of THE
WALL STREET JOURNAL
Tuesday, January 24, 2006
Federal prosecutors called irrelevant a key element of the
defense that former
Qwest Communications International Inc. Chief Executive
Joseph Nacchio plans to mount against criminal
insider-trading charges, court documents unsealed yesterday
Mr. Nacchio, who is pleading not-guilty, is accused of
selling $101 million of the Denver-based phone company's
stock in 2001 while he had insider information that the firm
wasn't doing as well as its public statements indicated.
Mr. Nacchio's attorneys have said in court that his defense
will rest partly on a claim that he expected the company to
do well despite its difficulties because he had secret
information about classified, national security-related
contracts he believed Qwest would win.
The unsealed documents provided the first glimpse of how
U.S. Attorney William Leone plans to rebut the unusual
national-security argument and suggests other prosecution
tactics. Having potentially positive insider information
doesn't shield a defendant against an accusation of trading
on negative insider information, Mr. Leone argued.
Mr. Leone also said government contracts made up only about
1.5% of Qwest's revenue, and classified contracts were an
even smaller portion -- nowhere near enough to cancel out
the company's mounting revenue problems. In any case,
prosecutors said, such contracts would have been included in
Qwest's internal and external projections, even if specifics
about them remained secret. Mr. Leone said that as long as
Mr. Nacchio had inside information, he was barred from
Mr. Leone also noted that executives who, like Mr. Nacchio,
sell on a prearranged schedule lose much of their protection
against insider-trading charges if they interrupt the
schedule, then later resume trading. Mr. Nacchio's defense
is likely to stress that he traded openly and on a schedule.
But Mr. Leone's filing said changes to a schedule suggest
that the seller could have been trying to time the market or
tailor trades to match events.
Qwest restated $2.2 billion in earnings and $2.5 billion in
revenue for 2000 and 2001. Mr. Nacchio hasn't been accused
of falsifying the company's books. Each of the 42 insider
trading counts against him carries a potential sentence of
10 years in prison, and prosecutors are seeking $101 million
in restitution. A trial date hasn't yet been set in U.S.
District Court in Denver.
In a defense filing that was also unsealed Monday, Mr.
Nacchio's attorney Herbert Stern said Mr. Nacchio plans to
show, among other things, that Qwest's publicly disclosed
financial information was accurate. The defense filing says
prosecutors will need to show that fraud was occurring and
Mr. Nacchio knew about it.
Shawn Young at