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Tug of war tightens in Nacchio case
By Jeff Smith
Rocky Mountain News
Thursday, February 8, 2007

Federal prosecutors late Wednesday rebutted the claim by Joe Nacchio's attorneys that they've been slow in turning over evidence such as witness interviews.  Prosecutors also said that just because the former Qwest CEO was told by his broker to diversify his investments and reduce his Qwest stock holdings doesn't mean he didn't commit insider-trading crimes.

"The financial advice to diversify -- which is elementary and universal -- is not inconsistent with the crime of insider trading," prosecutors wrote in a federal court filing.

Nacchio's attorneys on Tuesday requested a 60-day delay in the March 19 trial, arguing they needed more time to evaluate thousands of pages of evidence recently delivered by the government.  They also said that the government's version of events was in doubt because of such evidence as Nacchio's being advised to sell stock as early as 2000.

Nacchio faces 42 counts of insider trading in connection with selling $101 million of Qwest stock in the first five months of 2001.  He has pleaded not guilty.

Chris Bebel, a former federal prosecutor who is an expert in securities law, said it's predictable that the defense would seize on the fact that Nacchio was advised to reduce his Qwest stock holdings.  But Bebel downplayed the significance of the information.

"Any astute stock broker would convey this kind of advice" to an executive who had a large concentration in one stock, Bebel said.

Bebel and Carr Conway, a former Securities and Exchange Commission investigator, agreed with the government that the revelation doesn't excuse Nacchio from the obligation to refrain from selling stock if he had insider information.

Nacchio's attorneys also stressed this week that the evidence shows that Nacchio told his broker in the spring of 2001 that Qwest stock still was a good buy.  That evidence could cut both ways, experts said.

While it may reveal Nacchio's optimistic state of mind, Bebel and Conway said the government may argue it's consistent with Nacchio painting a false picture of the telco's financial health.

"It's a double-edged sword," said Conway, now director of forensic accounting at the Heartland Dickerson Group in Denver.

Still, Bebel said the moves show a skillful defense team.

"These are minor chess moves, but it's nonetheless good lawyering because the overall effect brought about by a collection of minor chess moves can be significant," he said. or 303-954-5155,2777,DRMN_23910_5336290,00.html