Defense on stage today as feds rest
ANSCHUTZ WILL TAKE STAND
The Justice Department rested its insider-trading case against former Qwest chief executive Joe Nacchio on Wednesday after calling 20 witnesses to build a case that he sold $100.8 million worth of stock while he knew his company was crumbling.
The defense will begin its case today with Qwest founder Philip Anschutz, who hired Nacchio, as its first witness.
U.S. District Judge Edward Nottingham denied a defense motion for acquittal made after the conclusion of the prosecution's case Wednesday.
"Motion for judgment of acquittal is denied," Nottingham said after listening to an hour- long presentation by one of Nacchio's attorneys. "The argument that I just heard might be suitable for a closing argument."
Two analysts who testified about Nacchio's reluctance to publicly disclose Qwest's growing dependence on one-time revenue in early 2001 and his acceleration of stock sales during that time were among the three witnesses who closed out the prosecution's case.
Goldman Sachs analyst Prashant Khemka testified that he told Nacchio a "big credibility issue" surrounded the company because of its reluctance to break out its revenue.
"The lack of transparency is going to hurt you because investors don't know how many cockroaches you still have in your bag," Khemka wrote in a three-page July 2001 letter.
In late 2000 and early 2001, Nacchio told Wall Street that one-time sales were a small, declining part of Qwest's business. But that wasn't the case.
Over 10 days of testimony, prosecutors called several former executives who said they warned Nacchio that Qwest would need to make more one-time sales to hit aggressive financial targets.
"We had been raising questions all along and not getting answers," Khemka testified Wednesday.
The company didn't disclose the magnitude of one-time sales to investors and analysts until August 2001 - after Nacchio had sold 2.5 million Qwest shares for $100.8 million during the first five months of that year.
He faces 42 counts of illegal insider trading connected to those sales. Each count carries a maximum penalty of 10 years in prison and a $1 million fine.
Nacchio's attorneys have contended that he had a rosy outlook on the company because he alone believed Qwest would receive lucrative government contracts from top-secret agencies. In fact, according to his attorneys, Nacchio didn't want to sell all of his shares and was required to exercise and sell stock options because they were close to expiring.
The earliest Nacchio's attorneys will call witnesses to testify to such a national-security defense is next week.
Khemka also briefly testified about "bogus" swaps of fiber-optic capacity between carriers made solely to generate revenue. The government hasn't been able to introduce Qwest's $2.5 billion restatement, much of which included swaps, because the restatement occurred well after Nacchio's stock sales.
Khemka told jurors about a January 2002 meeting he had with Nacchio in which Nacchio gave him "a piece of advice" in response to a question about how the company would restore its credibility.
"Never believe a word of what management says at the time of a merger," Nacchio said, according to Khemka's testimony. "Do you think AOL Time Warner management believed what they said at the time of their merger? Management has to say things to get the merger done."
Nacchio, 57, had set aggressive growth targets for Qwest and US West after the companies merged in June 2000 that proved unattainable.
Dana Chamberlain, a Justice Department financial analyst, wrapped up the government's case by testifying that Nacchio accelerated his stock sales during the first five months of 2001. Specifically, Nacchio sold an average of 505,745 shares a month from January to May 2001. He sold an average of 131,487 shares a month from January 1998 to December 2000.
In other developments Wednesday:
Nottingham said he will rule today, before the defense begins its case, on mistrial motions filed by the defense connected to "prejudicial" testimony by a Qwest shareholder and Nacchio's former financial adviser.
Former Qwest associate general counsel Yash Rana told the government he would invoke his Fifth Amendment right against self-incrimination if he were called to testify about an alleged backdating of a stock-sale document by Nacchio, according to lead prosecutor Cliff Stricklin. Nottingham said he is still considering the defense's request to allow hearsay evidence that involves Rana and is connected to the document.
Anschutz is expected to testify about how he lured Nacchio to Qwest from AT&T, according to the opening statement by lead defense attorney Herbert Stern. Anschutz personally cut Nacchio an $11 million check as an incentive, Stern said.
Nacchio joined Qwest in 1997 and was ousted by the board of directors in June 2002. He led Qwest, the dominant phone company in 14 states including Colorado, through tremendous growth before it nearly crashed into bankruptcy amid the tech downturn and news of the company's accounting irregularities.
He was indicted on insider-trading charges in December 2005. The trial started March 19 in Denver federal court.
Staff writer Andy Vuong can be reached at 303-954-1209 or email@example.com.