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Nacchio witnesses present problems
Testimony of those who received immunity or deals may come back to bite prosecutors, experts say
By Jeff Smith
Rocky Mountain News
Friday, March 2, 2007

Prosecutors in the insider-trading trial of former Qwest CEO Joe Nacchio face risks in putting certain witnesses on the stand who received immunity or especially lenient deals, legal experts said.  White-collar prosecutions are built through convictions, guilty pleas and immunity deals, beginning with low- or midlevel executives and working up the corporate ladder.

But depending on the terms of those deals, a skillful defense team may be able to convince a jury that the witness is merely tailoring his or her testimony to avoid punishment.

"The point is that these people cooperated with the government in exchange for leniency," said Jeralyn Merritt, a Denver criminal defense attorney.  The defense attorneys "will try to argue that it's purchased testimony, that because they have a vested interest in telling the government's (version), you can't put your faith in their testimony."

Merritt noted the jury will be instructed to view testimony from witnesses who have received immunity deals with caution.

Prosecutors gave defense attorneys a draft witness list Thursday, but the judge isn't likely to release it before a jury is seated.

Since the government's criminal investigation began in 2002, four former Qwest executives have pleaded guilty to crimes.  But none received prison time.  The stiffest sentences were six months of house arrest and two years of probation each for former Qwest Chief Financial Officer Robin Szeliga and former Executive Vice President Marc Weisberg.

By comparison, in both the WorldCom and Enron cases, prosecutors secured guilty pleas involving serious prison time for other executives before the trials and convictions of the top executives.  For example, Scott Sullivan, WorldCom's former chief financial officer, agreed to a five-year sentence before the trial of CEO Bernie Ebbers.

Nacchio prosecutors also have struck an undisclosed number of immunity deals with potential witnesses, the details of which are likely to emerge at trial if those people are called to testify.

Former Qwest Chief Operating Officer Afshin Mohebbi received immunity, and former Chief Legal Counsel Drake Tempest also is believed to have received immunity, according to multiple sources.

Tempest may be in the one of the best positions to know about Nacchio's state of mind at the time of the alleged crimes.  The two had a close relationship, often commuting together between their East Coast homes and Qwest's Denver headquarters.

Tempest, however, could be problematic as a prosecution witness because of attorney-client privilege issues and because he netted $2.6 million in stock sales during the same period Nacchio is accused of illegally selling stock.

Russell Mokhiber, editor of the Corporate Crime Reporter in Washington, D.C., said witnesses with immunity deals usually are a "wash or strengthen the prosecution's hand" in corporate-fraud cases.  But he agreed Tempest could hurt prosecutors.

"If the government puts him on the stand, the defense will have a field day" undermining his credibility, Mokhiber said.  "The prosecution will have to think twice about whether they'll put that witness on the stand and how they'll counteract (the defense)."

Jeff Dorschner, spokesman for the U.S. attorney's office in Colorado, declined to comment.  Tempest's attorney couldn't immediately be reached for comment.

Cliff Stricklin, lead prosecutor in the Nacchio case, handled similar situations as co-lead prosecutor in the Enron Broadband case.

Mohebbi is less problematic than the other potential witnesses.  He didn't sell stock during the period.

"That's probably a better witness for the government," Mokhiber said.

Mohebbi is seen as a potentially key witness to support government allegations that Nacchio knew Qwest's publicly stated financial targets were a huge stretch and that Qwest was doing deals -- such as one-time swaps of capacity -- just to meet its revenue targets.

Szeliga also may not pose as much of a risk for the prosecution since she pleaded guilty to one count of insider trading during the period in question.

While Szeliga didn't get jail time, she paid a $250,000 fine for an April 2001 trade that netted her only $125,000.  And she forfeited the $125,000 as well.

Gregory Casey, formerly the top sales executive for Qwest's fiber-optic network, also could be a prosecution witness.  He paid $2.1 million to settle civil fraud charges that he caused Qwest to buy capacity it didn't need and to backdate contracts.  He agreed to cooperate with regulators.  But Casey made $31 million by exercising stock options, although the lion's share was in 2000.

Former Chief Financial Officer Robert Woodruff, who faces civil fraud charges but no criminal charges, sold stock in early 2001, which could make him problematic as a prosecution witness.  He retired in early 2001.

Under the prosecution's umbrella

  White-collar cases typically are built by moving up the corporate ladder, securing convictions, guilty pleas and immunity deals with lower-level executives.  Such deals can backfire, though, if the sentences are seen as lenient and if the defense can convince juries that prosecutors "bought" testimony.  Here's a look at how that might play out in the Nacchio insider-trading trial.

Those thought to have received immunity

  Afshin Mohebbi, former chief operating officer

May have warned Nacchio financial targets were a stretch. Didn't sell stock during the alleged insider-trading period, so could be a good prosecution witness.

  Drake Tempest, former chief legal counsel

Had a close relationship with Nacchio, commuted together to Denver from East Coast homes.  Tempest is a problematic witness for the prosecution because he also sold stock during the alleged insider-trading period.

Possible deal with prosecutors

  Gregory Casey, former top sales executive

Casey pleaded the Fifth against self-incrimination in a congressional hearing in the fall of 2002.  He settled civil fraud charges alleging he had caused Qwest to buy capacity it didn't need and agreed to cooperate.

Guilty pleas with agreements to cooperate with the government

  Robin Szeliga, former Qwest chief financial officer, one count of insider trading in connection with a stock sale in late April 2001.  Told prosecutors that senior executives knew Qwest was beefing up its numbers through questionable, one-time deals such as swaps of capacity on the fiber-optic network.  Could be helpful to prosecution if her sentence of house arrest and probation isn't seen as lenient.  Unclear how close of a relationship she had with Nacchio.

  Marc Weisberg, former executive vice president;  Grant Graham, former finance executive;  and Thomas Hall, former sales executive

Weisberg was closest to Nacchio, but it's unclear whether any of the three will be key prosecution witnesses.  None got jail time, and Hall pleaded only to a misdemeanor. or 303-954-5155,2777,DRMN_23910_5388542,00.html