Nacchio's legal tab picked up
Bylaws require Qwest to pay for ex-CEO's defense
By Andy Vuong, Staff Writer
Friday, January 26, 2007
Joe Nacchio is getting the best defense Qwest can buy.
The Denver-based phone company is paying for Nacchio's multi
million-dollar defense against civil and criminal charges,
which include 42 counts of illegal insider trading.
Nacchio, Qwest's former chief executive and chairman, has
pleaded not guilty, and his criminal trial is scheduled to
start March 19.
His final legal tab could run from $25 million to $75
million for both civil and criminal cases, according to
experts. Former Enron CEO Jeff Skilling, who was convicted
of fraud and conspiracy last year, reportedly rang up $65
million in legal fees.
Qwest's bylaws require it to "advance legal fees to current
and former officers who may be involved" in any criminal or
civil legal proceeding because of their work with the
company, said spokesman Bob Toevs.
"If there is a finding against one of those former officers,
the company does have the ability or the right to recover
the fees that were advanced to the individual," Toevs said.
But Qwest would have to recover the fees through court
action, and the company wouldn't get anything if Nacchio's
finances are emptied by fines and other debts.
Nacchio faces up to 10 years in prison and a $1 million fine
for each of the 42 insider-trading charges. A separate
Securities and Exchange Commission civil fraud lawsuit seeks
his stock sale profits from 1999 to 2002 and bonuses.
Nacchio, who reaped $176.5 million in stock sales during the
period covered by the SEC lawsuit, has denied any
The requirement for Qwest to cover Nacchio's legal bill is
also spelled out in his severance agreement. Nacchio was
forced out of Qwest in mid-2002.
Qwest shareholder and retiree Jaclyn Prokesh called the
"It's really sad that a public corporation like Qwest is
going to end up having to pay for his legal expenses," said
retiree Nelson Phelps, executive director of the Association
of US West Retirees. "It's a further hit against a company
(through) legal costs for a person that many retirees look
at as almost sinking the company."
Qwest, which acquired Baby Bell US West in 2000, hasn't
disclosed how much it has spent or expects to spend on
Nacchio's defense. Some of the fees may be covered by
so-called Directors and Officers liability insurance, which
many public corporations including Qwest carry to help
defend and settle lawsuits against key officials.
But the insurance typically doesn't cover criminal charges,
said John Toothman, founder of The Devil's Advocate, a
legal-fees consulting firm in Great Falls, Va.
The Justice Department's case alleges Nacchio sold $101
million in Qwest stock in early 2001 while he knew the
company's finances were faltering.
Separately, the SEC has sued Nacchio and several other
former Qwest executives, alleging that they fraudulently
boosted revenues by $3 billion from 1999 to 2002. Qwest
later restated much of that revenue.
Nacchio has also been named in several shareholder lawsuits.
He is represented by two law firms: Roseland, N.J.-based
Stern & Kilcullen and Denver's Richilano & Gilligan.
Herbert Stern is Nacchio's lead attorney, and John Richilano
is the top local attorney. Six other attorneys from those
two firms have entered appearances in the criminal case.
Costs add up
Toothman said the lead attorneys in the case could likely
charge more than $500 an hour and their associates around
$200 an hour. The legal bill would also include fees for
pollsters, expert witnesses, travel expenses and other
One expert already has appeared in court filings on
Nacchio's behalf. Noted jury specialist Edward Bronson of
California State University reviewed hundreds of newspaper
articles and prepared a 62-page report supporting Nacchio's
effort to move the trial to New Jersey, which was rejected.
Bronson has said that he is paid $125 an hour for his work.
"These are expensive litigations," said John Marquess,
president of Legal Cost Control, a legal-fees consulting
firm in New Jersey. "These things could go as high as $60
million to $75 million to defend."
Since Qwest is paying fees in advance, Marquess said Nacchio
has no reason to control costs. Skilling shelled out $23
million from his own pocket for his attorney fees, his
insurance covered $17 million and $25 million went unpaid,
according to published reports. Enron had filed bankruptcy
by the time Skilling faced criminal charges.
"When it's your own money, you may care a bit," Marquess
said. "When it's not your own money, what's he care?"
Legal experts said large corporations such as Qwest need to
offer officers and directors financial protection from
lawsuits in order to hire them.
"It'd be hard to attract the kind of individuals that you
need to run a public corporation without that type of
indemnification," said John O'Dorisio, a Denver corporate
Harvey Pitt, former chairman of the SEC, said companies
should have their boards conduct an investigation into
charges before advancing legal fees. He also said they
should have adequate protections in place to ensure that
they'll be able to recover the fees.
"Unless there are satisfactory responses to these questions,
I don't believe boards are justified in advancing expenses,
even though they may legally be able to do so or even
obligated to do so," said Pitt, who now heads business
consulting firm Kalorama Partners.
Experts said companies rarely recover legal fees from former
executives even if they are convicted, and shareholders
ultimately foot the bill.
"There's a lot of hurdles to get that money back," Marquess
The company would have to stand in line behind court fines,
debt holders such as mortgage companies and shareholders
that file civil suits.
Experts said Qwest would have the ability to recover
attorney fees from former Qwest chief financial officer
Robin Szeliga, who pleaded guilty to one count of illegal
But during her sentencing last year, Szeliga said she has
faced "financial devastation." She was fined $250,000 as
part of her sentence.
Szeliga is the only other former top Qwest officer to have
been charged criminally. Former president Afshin Mohebbi
and former CFO Robert Woodruff, who preceded Szeliga, are
also named in the SEC suit.
Toevs said he couldn't comment about individual cases.
Staff writer Greg
Griffin contributed to this report.
Staff writer Andy Vuong can be reached at 303-954-1209 or