The Association of U S West Retirees



Qwest Ex-Official Sold Shares
At Nacchio's Trial, Witness Testifies Outlook Was Shaky
By Dionne Searcey
The Wall Street Journal
Thursday, March 22, 2007

DENVER - A former investor-relations manager at Qwest Communications International Inc. testified yesterday during former chief Joseph Nacchio's insider-trading trial that a "crisis of conscience" stopped him from selling stock during the same period as Mr. Nacchio because he knew what investors didn't know -- that the company's finances were in trouble.

The manager, Lee Wolfe, told jurors that he sold roughly $600,000 worth of Qwest shares in several transactions starting in January 2001 before he stopped in April 2001.

"I had a crisis of conscience.  I knew it was wrong," Mr. Wolfe said.  "I shouldn't have done it before.  I quit."

The second day of testimony centered on what prosecutors consider to be Mr. Nacchio's overly optimistic outlook on his company's finances even as the telecom bubble was showing signs of strain in 2000 and 2001 and his underlings told him his optimism might be a stretch.

Mr. Wolfe said he had received a form of limited immunity from prosecutors in exchange for his testimony, a fact the defense seized on to undermine his statements to the jury.

Under cross examination, Mr. Wolfe acknowledged he had never consulted lawyers about whether he might be violating insider-trading rules when he profited from selling the stock and had, in fact, waited until 2004 to contact a lawyer about the sales when the Securities sand Exchange Commission contacted him about an investigation into alleged financial improprieties at Qwest.

"When the winds started blowing the other way, you cooperated, right?" John Richilano, one of Mr. Nacchio's lawyers, asked the witness.

"I was concerned I'd be prosecuted," Mr. Wolfe said.

Mr. Wolfe, who also sold $1 million worth of stock in 2000, told jurors Mr. Nacchio repeatedly insisted in news releases, conference calls with analysts and meetings with investors in 2000 and 2001 that Qwest could make its revenue targets.  Meantime, its peers, such as the former SBC Communications Inc. and the old AT&T Corp., were missing theirs as a fiber glut and downturn in the economy took their toll on the industry.  Mr. Wolfe said he warned Mr. Nacchio that Qwest was facing the same fate.

"Prices were coming down and analysts were concerned about the company being able to meet its projections," Mr. Wolfe said.

The bursting bubble eventually caught up with Qwest in mid-2001, and its stock cratered.  The federal indictment covers a period of stock sales made by Mr. Nacchio just before Qwest shares dropped significantly.

Investors' concerns turned to suspicion "that there was something funny going on," Mr. Wolfe said.  Mr. Wolfe testified that one analyst in 2001 had sent the company a note saying, "The lack of transparency is going to hurt you because investors don't know how many cockroaches you still have in your bag."

Mr. Wolfe testified he knew Qwest was relying on one-time revenue to make its outlook look rosier than it really was.  He said he sensed the industry downturn would catch up with the company, and that is when he started selling off his stock until his internal guilt, he said, got the better of him.

On Tuesday, defense attorneys added to their witness list former U.S. counterterrorism adviser Richard Clarke.  Mr. Nacchio's attorneys will likely try to elicit testimony from Mr. Clarke that supports their theory that the defendant expected to get lucrative classified contracts that would help Qwest's finances.

Write to Dionne Searcey at