The Association of U S West Retirees



Prosecutors:  Former Qwest CEO a Cheater
By Jon Sarche, The Associated Press
Washington Post
Wednesday, March 21, 2007

DENVER -- Former Qwest Communications CEO Joe Nacchio, a firm believer in the telephone company's future, was reluctant to sell shares in early 2001 and asked the board for an extension but was turned down, his attorney says.

Nacchio "believed passionately, firmly and honestly in the public financial targets of his company," defense attorney Herbert Stern told jurors Tuesday during a two-hour opening statement.  "We're going to demonstrate and show and prove to you that the accusations in this case are false."

Earlier, prosecutor James Hearty insisted that Nacchio dumped $101 million worth of stock in the first five months of 2001 because he knew that Qwest Communications International Inc. could be in financial trouble.

"This is a case about cheating," Hearty said in his one-hour opening statement.  "He sold $100 million worth of Qwest stock when he knew about problems at Qwest --problems that people outside Qwest did not know."

Testimony was to resume Wednesday in Nacchio's trial with more testimony from Lee Wolfe, a Qwest senior vice president of investor relations in late 2000 and 2001.

Wolfe told jurors Tuesday that in late 2000, he and Nacchio talked about the telephone industry and concern that other companies were building fiber optic networks similar to Qwest's operation.

About the same time, industry analysts "were trying to understand how we were going to achieve our financial targets," Wolfe said.

He said there was a "golden rule" at Qwest -- never to take any action that would hurt the stock price -- something Nacchio communicated to employees.

After a jury of 11 men and seven women was seated, Hearty emphasized to the panel that the case was straightforward and had nothing to do with accounting.

Late in 2000, Nacchio became aware of problems Qwest would be facing in 2001 and that the company could fall far short of financial targets it had set publicly, Hearty said.  At the same time, Nacchio repeatedly "told investors that everything at Qwest was great."

"Mr. Nacchio sold many more shares of Qwest stock during this time period than he had ever sold before.  In the first five months of 2001, Mr. Nacchio sold 250,000 more shares than he had in the previous 18 months combined," Hearty said.

"He told investors that he was very confident that Qwest would achieve the high growth rates that he told them to expect," Hearty said.  "But at the same time, he was being told different information from (executives) at Qwest."

Qwest's stock price plummeted from more than $60 a share in 2000 to just $2 a share in 2002, and its near-collapse left thousands of pensioners in financial trouble.

Stern countered that documents used by prosecutors to depict Qwest's public growth targets were in fact about budgets set internally that were designed as goals to energize Qwest workers into exceeding those estimates.

In addition, Nacchio was aware of secret, potentially lucrative government contracts that Qwest could win and the money would help the company's financial picture, Stern said.

Stern promised that the defense would account for all of Nacchio's stock sales and that they were timed in part by Nacchio's contract with Qwest founder Philip Anschutz -- not inside information.

Nacchio also was being urged by his personal financial advisers to diversify his portfolio, and in some cases he faced the loss of stock options set to expire, Stern said.