The Association of U S West Retirees



Qwest docket pared to one
Weisberg fined $250,000;  only Nacchio's case pending
By Jeff Smith, Rocky Mountain News
Saturday, March 4, 2006

(Note:  A portion only.)

Prosecutors cleared the decks Friday of the last of the criminal cases against former Qwest Communications executives -- except for the 42 charges against Joe Nacchio.  Marc Weisberg, a former executive Vice President for the telecommunications company, was fined $250,000 and sentenced to 60 days of house arrest and two years of probation.  He earlier had pleaded guilty to fraud for improperly taking stock from a vendor.

That leaves what is likely to be the final installment in the government's now four-year investigation of the Denver telco;  the insider-trading case against former CEO Nacchio.  A trial could come as early as this fall.
Weisberg, who made around $30 million during this tenure at Qwest -- much of it by exercising Qwest stock options -- faced years if not decades of prison if convicted of all the fraud charges. 
The plea agreement requires Weisberg to continue cooperating with prosecutors, but he's seen at most as a potential witness to describe Qwest's aggressive corporate culture should the government's insider-trading case against Nacchio go to trial.
Some criticized the Weisberg plea deal as too lenient.  But U.S. Attorney for Colorado Bill Leone on Friday defended the punishment.

Leone said the sentence sends a "deterrent message" that this kind of conduct, "so rife with potential for conflict of interest," will be punished.

"I don't think the deal was too lax at all", Leone said.,2777,DRMN_23910_4514360,00.html

Weisberg case outcome lauded
Ex-Qwest exec abused position, prosecutor says
By Jeff Smith, Rocky Mountain News
Saturday, March 4, 2006

The felony conviction of former Qwest executive Marc Weisberg "advances the ball" against corporate executives who profited from questionable relationships with vendors and investment banks, a federal prosecutor said Friday.  "Qwest had a conflict-of-interest policy that was badly abused" during the telecommunications bubble, said U.S. Attorney for Colorado Bill Leone.

Although other former Qwest executives and directors made money from such relationships, Weisberg's conduct was "worse than others; his punishment reflects that," Leone said.

Leone's comments came in an interview after Weisberg was sentenced to 60 days of house arrest and two years of supervised probation, and fined $250,000.

Prosecutors alleged Weisberg netted $2.9 million from various vendor transactions, including deals requiring suppliers to "pay," or offer investment opportunities, if they wanted to "play," or get Qwest contracts.

While the initial indictment alleged Weisberg's conduct was illegal, it didn't go as far as to allege that vendor-investment practices in general are illegal.  For that reason, prosecutors aren't expected to go beyond Weisberg in this area.

Qwest's conflict-of-interest policies banned employees from taking gifts valued at more than $100 from a vendor.  Yet Qwest often negotiated for an equity position in a technology supplier and permitted some executives to take advantage of the investment opportunities.

A number of former Qwest executives and directors including former CEO Joe Nacchio also benefited from preferential "friends and family" shares allocated when technology companies sold stock to the public for the first time.  Those stocks often soared in value on the first day of trading, and the executives then could immediately sell their shares for a handsome profit.

Regulatory filings at the time provided only scant detail of some deals.  Weisberg's name, for example, surfaced as president of a Qwest subsidiary called U.S. Telesource that had stock purchase deals with a number of companies.

Ten former Qwest executives and directors including Nacchio showed up in filings as receiving Lucent shares in exchange for stock in a technology supplier called Chromatis.  Weisberg wasn't on that list.

Lucent bought Chromatis for $4.7 billion in June 2000, just days after news of Qwest's successful test of Chromatis' optical switching device.  Within 14 months, Chromatis was shut down by Lucent.

Case law is in its infancy regarding such investment opportunities, which were relatively common in the telecommunications industry in the late 1990s and in 2000 and 2001.

New York Attorney General Eliot Spitzer tried to crack down on an aspect of the practice.  In 2002, he alleged that five executives and directors of telecommunications companies had improperly profited from lucrative initial public offerings, or IPOs.  Among those sued by Spitzer were Nacchio and Qwest founder and director Phil Anschutz.

In that case, Spitzer charged that New York investment banking firm Salomon Smith Barney had doled out the potentially lucrative stock in efforts to retain investment banking relationships with the companies.

In 2003, Anschutz agreed to give $4.4 million to charities and nonprofits to settle the Spitzer case, and Nacchio agreed to give $400,000.  Neither admitted to any improper behavior.  Anschutz officials have repeatedly said the IPO transactions were handled by others at The Anschutz Co., not Anschutz himself.

Former McLeodUSA Chief Executive Clark McLeod decided to fight Spitzer's lawsuit.  In a landmark decision last month, New York Justice Richard Lowe III ruled McLeod was liable for receiving the IPO shares, and he characterized the allocations as a "sophisticated form of bribery."

'Pay to play'

  The case:  Prosecutors alleged Marc Weisberg netted $2.9 million from various vendor transactions, including deals requiring suppliers to "pay," or offer investment opportunities, ifthey wanted to "play," or get Qwest contracts.,2777,DRMN_23910_4513784,00.html