The Association of U S West Retirees



Stricklin begins rebuttal 
By Tom McGhee, Staff Writer 
Denver Post
Wednesday, April 11, 2007
Article Last Updated: 04/11/2007 02:58:28 PM MDT

Former chief executive of Qwest Communications, Joe Nacchio, center, his wife Anne, left, and son Michael, right, arrive at the federal courthouse in Denver Wednesday, April 11, 2007. (Ed Andrieski | AP)

Defense attorney Herbert Stern has concluded his nearly five hour closing argument in the insider trading case of former Qwest CEO Joe Nacchio.  Lead prosecutor Cliff Stricklin has started delivering the government's rebuttal.

Stricklin began his rebuttal by telling jurors that, over the past four weeks, they've been taken behind the scenes at Qwest.

"You've learned Joe Nacchio actually used the information -- the information that he knew by virtue of an inside position -- to sell Qwest stock, to take his chips off the table while risks abounded," Stricklin said.

During his closing argument, Stern told jurors that Qwest employees who testified for the prosecution did so to avoid jail, the numbers that Nacchio gave Wall Street were

set by investment bankers, and that the former Qwest CEO had no personal interest in the price of the company's stock when he held a press conference.  Stern also called former Qwest investor relations director Lee Wolfe a liar, and said that prosecutors forced others to take the stand to avoid legal trouble.

Wolfe lied when he said Nacchio was warned on the night before a $31 million study was released that projections for a combined Qwest/US West were too aggressive, Stern said.

Wolfe, who testified in the early days of this four-week trial, said in working with Nacchio he learned that the best way to get Nacchio to listen to him was to get "someone from the investment community to tell him the same thing," Stern said.

Wolfe thought the projections in the report, later used to develop revenue and earnings targets for the company, were too aggressive.  So he brought in brokers from Lehman Brothers and Donaldson, Lufkin & Jenrette, the two firms that did the report, to tell Nacchio the same thing.

They met on the night before the report was released, and the brokers told Nacchio the numbers were too high, Stern said.

The report was too important for such a last-minute meeting to take place, Stern said.  "It was impossible that the night before this report came out such a meeting would take place," Stern said.  "You now know that Wolfe could not tell you the truth."

Former Qwest CFO Robin Szeliga pleaded guilty to insider trading, and other witnesses either pled guilty, or were granted immunity for their testimony, Stern said.  Szeliga used the proceeds of her trade to upgrade her kitchen, he said.

Stern has made much of the report created by Lehman Brothers and Donaldson, Lufkin & Jenrette in the days before Qwest merged with regional Bell phone company US West in 2000.  Nacchio based guidance he gave to the investment community for 2000 and 2001 on numbers developed for that report, Stern said.

He raised revenue targets originally projected in the report for 2001, but only because Qwest exceeded projections for 2000 by $450 million

Nacchio could not have known that at the time he was setting the new numbers the economy was on the verge of a crash that would damage Qwest, Stern said.

The company hit targets in 17 consecutive quarters because Nacchio gave his management team internal targets, called "stretch budgets," that were higher than those given to Wall Street, Stern said.

Within the company the word "stretch" came to mean the excess included in the internal budgets, Stern said.

Coupled with those high targets were lucrative incentives in the form of stock options that the executives received for hitting the internal targets and exceeding guidance given to the investment community, Stern said.

The government claims that Nacchio called a Dec. 21, 2000 press conference in order to boost Qwest's stock price -- and the amount he would receive in selling his -- which was declining after two other telecommunications companies had made announcements that hurt the entire telecommunications industry, Stern said.

Former Qwest head of investor relations Lee Wolfe testified earlier in the trial that Qwest's stock had gotten "hammered" after the announcements, losing $10 per share almost immediately.

"The first sale he made was January 26, so what personal, selfish, venal, corrupt interest was it that drove Nacchio to hold a press conference on the 21st to assure the investment community that whatever else was happening in the telecommunications industry" Qwest was doing well, Stern said.

In his closing argument, Stern has also made sure jurors are aware that the value of $25 million in stock that Nacchio was to receive on Jan. 1, 2001 was set in 1999 by Qwest's board.

He was to receive stock worth that much whether shares were trading at $1 per share or more on that day.  That argument suggests that Nacchio had no personal reason to worry about the stock price.

Stern frequently apologized to the jury for the glacial pace of his closing argument, saying that he must be thorough because Nacchio's future is imperiled by the charges of insider trading for which he is on trial.