The Association of U S West Retirees



Colombo-like defense drops ticking time bomb
By Anthony Accetta
Denver post
Monday, March 26, 2007

Now the promises of lawyers move from talk to action.  The real case has begun.  No opinion.  Not speculation.  Just evidence.  What did Joseph Nacchio say?  What did Joseph Nacchio do?  What did Joseph Nacchio know when he sold?

With one huge exception, the defense so far seems to rely on style points, while the prosecution is building its case bit by bit in a workmanlike manner.  Defense attorney Herbert Stern came under fire from Judge Edward Nottingham on Thursday for being unprepared, for being slow, and for making mini summations before many questions.  That is a tactic many trial lawyers use.  Repeat something favorable as part of a question, and then do it again and again, until the jury hears the question as a recitation of facts favorable to the defense rather than as a straight question.

Stern pushed that one until a red-faced judge fairly blew up.  But there was method in Stern's madness.  It is early in the trail and he needs to know how far he can go with this judge.  Stern plays Colombo, scratching his head and bumbling through papers.  He strains to ingratiate himself as just a regular guy.  The judge is having non of it.  Who know if the jury is buying it?

Make no mistake, Herbert Stern is not unprepared.  Herbert Stern is not disorganized.  Herbert Stern is executing the script he laid out in his opening statement and doing his calculating best to make things so because he says they are so.

So far the government has presented all the right preliminary evidence that Joseph Nacchio had the benefit of negative inside information when he sold stock in Qwest for millions and millions of dollars.

That is not where the drama in this case has come from.  The drama so far has come from the emerging defense that nothing is Joe Nacchio's fault.  It was Phil Anschutz who kept throwing dollars and stock options at him.  It was the company that caused him to extend his contract, when all he rally wanted to do was stay home and take care of family problems.  It was the compensation committee that kept giving him option after option worth millions.  It was the board who forced him to not only exercise those options but also to sell the underlying stock rather than hold onto it.  It wasn't Joe's fault that the "value" shares he sold in the open market were doomed to plunge when the truth about the company came out.  Or is it that Joe was a victim of a general decline in the market?

Maybe this tactic will work, maybe not.  But the defense has placed a silent ticking time bomb into this case that could be devastating.  The government's case depends on proving that Qwest was meeting Wall Street expectations of revenue through the use of "nonrecurring" sales.  These were sales of fiber-optic capacity which are portrayed by the government as "one-time deals."  When the one-time deals stopped, the theory is, Qwest's revenues would plummet and so would its stock price.  Maybe Nacchio honestly believed otherwise.

On cross-examination of the government's first witness, Lee Wolfe, Qwest's chief investor-relations executive, the defense obtained evidence that could shatter the government's theory, unless it is rebutted.  Wolfe's so far uncontradicted testimony was that Qwest possessed "virtually unlimited" fiber-optic capacity for sale in a market that had ample demand for that capacity.  The record, as it stands, will allow the defense to argue that the so-called "one-shot deals" were in fact not one-shot at all, but the first in a predictable series of capacity sales that would constitute recurring income for a substantial period of time, not nonrecurring income.

As good lawyers will do, Stern obtained that little piece of testimony very quietly, and it was not highlighted in any way.  It won't be highlighted again until summation.  If it is not discredited before then, the government's case will suffer a possibly fatal blow.  The stock drop could have come from market conditions, not from undue reliance on one-time sales, it will be argued.  Therein lies reasonable doubt. 

Anthony Accetta is a former assistant U.S. attorney in New York and former first assistant attorney general and special prosecutor in Colorado.  He has prosecuted many white-collar-crime cases and heads the Denver-based Accetta Group.