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
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
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
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
"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
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
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
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
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
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.