Nacchio just missed great excuse
By Al Lewis, Staff Columnist
Sunday, March 25, 2007
Joe Nacchio missed the excuse jackpot by one day.
On Sept. 10, 2001, the former Qwest CEO finally lowered his
revenue projections for the phone company. Nacchio announced
plans to cut 4,000 jobs, about 6 percent of Qwest's workforce,
because the company suddenly expected to earn $500 million less
than Nacchio had said it would for the year.
If Nacchio had waited one more day, he could have blamed the
Throngs of Wall Street analysts and investors rising against
Nacchio's overzealous projections would have been more easily
quelled. Nacchio could have said he missed his numbers not
because they were insanely optimistic but because 9/11 was an
If there were ever a last chance to divert attention away from
Qwest's $2.5 billion in overstated revenue and Nacchio's massive
stock sales, this was it. It was the excuse jackpot. Nacchio
missed it by a day. Qwest's board fired Nacchio in June 2002 as
the company's stock slouched toward its historic low of 99 cents
a share in intraday trading. Thousands of employees and
investors had lost fortunes. The company was nearly bankrupt.
But Nacchio was hundreds of millions of dollars richer.
Now, he is on trial on 42 counts of illegal insider trading.
Prosecutors accuse him of lying about Qwest's prospects and
fudging its books as he dumped his stock.
Nacchio's lawyer, Herbert Stern, reminded me of Nacchio's
unlucky timing during opening arguments last week.
"You know what date he took it down, folks?" Stern said of
Nacchio's projections. "You're going to be amazed. He took it
down on September 10 of 2001. ... You know what happened the
next day? Of course you do. 9/11. Planes crashing into
buildings, monsters killing our colleagues, stock market closed
for seven days. And when it reopened, Qwest stock went up. Go
Eventually, the weight of Qwest's accounting issues may have
crushed Nacchio anyway. But backing off his projections after
9/11 would have given him more time and more cover.
Now, prosecutors are portraying Nacchio as a renegade CEO who
made reckless, if not fraudulent, promises to Wall Street to
prop up Qwest stock as he sold it. And some significant cracks
are emerging in portions of Nacchio's defense.
Stern argues that every bold pronouncement Nacchio made was
accompanied with a warning about "forward-looking statements."
Investors often overlook this boilerplate language, which
essentially warns that any prediction one makes about the future
may not prove true. They also overlook "risk factors"
enumerated in regulatory filings.
This language is designed to protect companies from civil
litigation. It's not clear whether it can protect a CEO against
"It's like the fine print on a parking-lot stub," said Anthony
Accetta, a former federal prosecutor observing the Nacchio trial
for The Denver Post. "It's not really going to protect the
parking-lot owners if they do something stupid."
Stern also deployed the "use it or lose it" defense. He said
Nacchio cashed his options because they were about to expire.
"He had to get rid of those options," Stern said. "Would you
expect him just to say, 'I'm not going to exercise them?"'
Prosecutors have countered with testimony from Craig Slater, a
former Qwest board member. Slater told the court that Nacchio
could have exercised and held his stock. This may have involved
selling some stock to pay taxes and the strike price of his
shares, but holding the remaining stock would have demonstrated
Nacchio's confidence in the company. Also, options that are
about to expire don't come with a license to trade them when
rules prohibit otherwise.
Too bad Nacchio missed Sept. 11 by one day. We might be more
inclined to view him as a great CEO whose unbridled optimism was
curbed only by terrorists. This, however, hasn't prevented
Stern from making the argument.
"Bad things happened to the economy," Stern said. "Bad things
happened to companies. And people do get upset about that.
Sometimes there is a feeling that somebody has got to pay. And
the investigations start, and the drums start banging. ... He
didn't do it. He shouldn't be prosecuted."
Al Lewis' column appears Sundays, Tuesdays and Fridays. Respond
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