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Peek at evidence suggests how Nacchio trial will play
Contract talks with U.S. could cut both ways
By Jeff Smith
Rocky Mountain News
Saturday, February 10, 2007

Defense attorneys say their case is bolstered by brokers who advised Joe Nacchio to sell Qwest stock.  Federal prosecutors say their side is boosted by evidence that Qwest wasn't about to land the lucrative government contracts Nacchio says it was.

Such details and more have emerged in recent court filings and hearings, in advance of former Qwest CEO Nacchio's March 19 trial.  Nacchio faces 42 counts of insider trading in connection with selling $101 million of Qwest stock in the first five months of 2001.

As other white-collar trials have proved, it's almost impossible to predict how a jury will take in evidence.  Often, the same material can be viewed in different ways.

Federal Judge Edward Nottingham this week made that point, saying some of the evidence turned over to the defense seemed to be ambiguous or cut both ways.  He also was adamant the 7 1/2-week trial would start on schedule and scolded both sides for wasting time arguing like "petulant children in a sandbox" over evidence exchange.

Here are some of the recently disclosed details and how they could play in the trial:

  Defense attorneys previously have asserted that various "clandestine" government agencies were actively considering awarding hundreds of millions of dollars of top-secret contracts to Qwest in 2001.  Some of those agencies already were Qwest customers, and Nacchio also may have had private discussions with top government officials as a member of a national security advisory panel.

Prosecutor Leo Wise said in court this week that the government possessed contract documents that contradict Nacchio's story.  Wise specifically referred to talks with an undisclosed agency that Nacchio asserted resulted in a contract, while the agency maintained talks had broken off.

"Nacchio is trying to dig up as much evidence that the business prospects of the company were impressive and he knew it, and therefore was not motivated to sell (stock)," said Chris Bebel, a former federal prosecutor and expert in securities law.  "But you can bet prosecutors have a couple of witnesses lined up saying that (the discussions) never progressed very far."

  A recent court filing states that two stockbrokers, both of whom handled some of Nacchio's 2001 transactions, told the government they advised Nacchio to reduce his Qwest holdings.  Nacchio supposedly told one broker in the spring of 2001 that he thought Qwest stock was still a great buy.

The defense argues that evidence casts doubt on the government's theory that Nacchio was dumping stock because he thought the company's financial condition was weakening.

"I think the question remains, 'Did you have insider information' (that the company's finances were getting weaker)," said Carr Conway, a former federal securities investigator who now is director of forensic accounting at the Heartland Dickerson Group in Denver.

Experts say Nacchio's statement that Qwest stock was a great buy could go either way.  The defense likely will argue it shows Nacchio believed the future was bright, while prosecutors could argue the statement was consistent with Nacchio's painting a false picture of the telco's financial health. or 303-954-5155,2777,DRMN_23910_5342048,00.html