CEO Nacchio Seeks Dismissal of Trading Charges
By Shawn Young
The Wall Street Journal
Friday, February 10, 2006
Former Qwest Communications International Inc. Chief
Executive Joseph Nacchio asked a judge to dismiss the
insider trading charges against him, claiming the
prosecution's case is so vague and erroneous that it
shouldn't be allowed to proceed.
In a filing with the U.S. district Court in Denver late on
Friday, Mr. Nacchio's attorney Herbert Stern blasted U.S.
Attorney William Leone's case against Mr. Nacchio as
"confused, confusing and internally inconsistent." The
filing says the government "had no case at all."
Mr. Nacchio was indicted in December on 42 counts of insider
trading after a government investigation that lasted more
than three years. Each count carries a potential penalty of
10 years in jail. The government also seeks $101 million in
penalties, reflecting the face value of the stock Mr.
Nacchio sold in 2001, while he allegedly knew the
Denver-based phone company wasn't doing as well as he
Qwest, a Wall Street stock darling during the late 1990s
ultimately restated $2.5 billion in revenue and $2.2 billion
in earnings for 2000 and for 2001, the year the accounting
problems began coming to light. Mr. Nacchio was forced out
of his post in 2002 amidst the mounting accounting scandal.
Mr. Nacchio was allegedly warned by former Qwest President
Afshin Mohebbi, who is expected to be an important
prosecution witness, that Qwest's financial projections were
"a huge stretch" and the company would be in trouble if its
key sources of revenue didn't improve. He allegedly was
aware that the company was meeting its financial targets
only through unsustainable one-time sales and aggressive
Neither Mr. Nacchio nor any other former Qwest executive
faces criminal charges of falsifying the company's books,
though Messrs. Nacchio and Mohebbi, along with other former
executives, face civil fraud charges from the Securities and
In its filing, which was intended to deal with flaws in the
indictment, the defense claims the prosecution makes claims
that are so vague they don't identify a crime.
"It is not alleged that Mr. Nacchio knew Qwest could not
make its numbers, or even that he believed Qwest would not
make its numbers, but merely that he had been told that
Qwest might not be able to make its numbers," the defense
The defense also says that the company was meeting financial
targets at the time, and the government fails to claim that
there was anything amiss in Qwest's financial reporting or
its disclosures to investors. Any information Mr. Nacchio
allegedly had about Qwest's troubles, therefore, was not
material and would not have barred him from selling his
stock, the filing says.
The defense also says the prosecution erred in asking for a
penalty that reflected the full face value of the stock Mr.
Nacchio sold because the figure does not take into account
what Mr. Nacchio paid for the shares and thus overstates the
proceeds of the sales. The filing does not say how much
profit Mr. Nacchio made from the sales.
A spokesman for Mr. Leone's office declined to comment on
the defense filing.
Although the filing didn't address this aspect of Mr.
Nacchio's case, the former chief executive is expected to
argue, in part, that he didn't believe Qwest was in trouble
because he was aware of secret national security-related
contracts that he expected the company to win. Other
executives who expressed concern about Qwest's ability to
perform as expected didn't know about the potential
classified contracts, Mr. Nacchio is expected to claim.
In earlier filings, the prosecution argued that Qwest's
government contracts, even if they had come through as Mr.
Nacchio expected, wouldn't have been big enough to solve the
company's revenue problem. The prosecution also argued that
possession of potentially positive insider information
wouldn't cancel out the crime of trading on negative insider
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