Ex-controller wanted to reveal Qwest 1-time deals
Mark Schumacher, testifying in Joe Nacchio's trial, said he was
told it wasn't necessary, but the info was released later.
By Andy Vuong and Tom McGhee, Staff Writers
Thursday, March 29, 2007
By early 2001, one-time deals for capacity on
Qwest's fiber-optic network made up such a large portion of the
company's revenues that then-controller Mark Schumacher wanted
to disclose them in the first-quarter earnings report,
Schumacher testified Wednesday in the insider trading trial of
former chief executive Joe Nacchio.
Other executives have testified that Nacchio was reluctant to
disclose such deals because of fears that it would hurt the
company's stock price.
Schumacher testified he raised his concern with then-chief
financial officer Robin Szeliga, who reported directly to
Nacchio, and she told him the disclosure wasn't necessary. Mark
Iwan, of Arthur Andersen, the company;s outside auditor, also
felt it wasn't needed, Schumacher testified. Iwan later
recommended to the Qwest board's audit committee that the deals
be included in the company's second quarter 2001 report to the
Securities and Exchange Commission, he said. They were then
Because of the lack of disclosure of the one-time deals,
Schumacher personally didn't sell any Qwest stock in the spring
of 2001, he testified.
Qwest hit its financial targets during the first two quarters of
2001, which encompasses the time that Nacchio is accused of
illegal insider trading. Qwest later restated $2.5 billion in
revenue booked from 2000 through 2002 for what it called
improper accounting, including the early 2001 period.
But the prosecution hasn't been able to introduce evidence of
the restatement, which occurred after the trades that are part
of the indictment.
Schumacher was one of three former Qwest executives who
testified Wednesday for the prosecution. The others were Grant
Graham, a former vice president of finance, and Greg Casey, the
former head of the wholesale business unit, who began his
Still to come is a key witness, former Qwest president Afshin
Mohebbi, who could testify as early as today. Mohebbi was
considered Nacchio's right-hand man at Qwest.
Graham and Schumacher said that Nacchio set incredibly tough
revenue targets on their business units, echoing statements
Casey made Tuesday.
"It was a huge stretch," Graham said of his 2001 target of $7.3
billion. "In order to get the revenue target we were going to
have to sell a lot more volume."
Graham pleaded guilty to one count of wire fraud in a separate
fraud case involving Qwest. As part of the deal, he agreed to
help the government's investigation into Qwest.
Both Schumacher and Casey have settled civil charges with the
Securities and Exchange Commission.
Schumacher said he received immunity for his testimony.
Under cross-examination, Graham that he knew of some potential
classified work that Qwest was seeking.
The defense has stated that Nacchio was bullish on Qwest because
he believed the company would receive lucrative secret
Graham said one potential contract he knew of was code-named
Moby Dick. It was renamed Ferrari.
"It was my understanding that it was classified work," Graham
He said he didn't know why the name changed.
Staff writer Andy Vuong can be reached at 303-954-1209 or