trial edges to a close
By Sara Burnett and Jeff Smith
Rocky Mountain News
Saturday, April 7, 2007
Prosecutors this week rested their insider trading case against
former Qwest CEO Joe Nacchio, after testimony by a parade of
former executives and analysts. On Thursday, the defense began
calling witnesses and said it could wrap up its case Monday.
The big question now is whether Nacchio will take the stand.
The defense has been given until 5 p.m. today to make a
So far, as expected, there's been no smoking gun. Rather,
prosecutors have tried to build a circumstantial case that
Nacchio knew Qwest's finances were weakening at a time he was
accelerating his stock sales.
The prosecution hasn't been allowed to introduce evidence that
Qwest, under different management, later erased some of those
revenues from its books.
The jury will have to decide whether the evidence shows beyond a
reasonable doubt that Nacchio had a "willful intent to defraud"
or, as one legal expert put it, "intentionally acted" on
nonpublic, insider information.
The trial marks the culmination of a five-year federal
investigation into Nacchio's era at the Denver
telecommunications firm. Three former executives -- Robin
Szeliga, Grant Graham and Marc Weisberg -- have pleaded guilty
to one felony count each, but no one has served jail time.
Several former executives received immunity from prosecution in
exchange for their testimony at Nacchio's trial.
Even if Nacchio is acquitted of criminal insider-trading
charges, his legal problems aren't over. He still faces
civil-fraud charges by the Securities and Exchange Commission,
which is seeking $216 million in alleged "ill-gotten gains."
With the criminal trial close to a conclusion, the Rocky
Mountain News takes a look at the case so far.
• Nacchio faces 42 counts of insider trading for selling stock
between January and May 2001. Prosecutors say he grossed $100.8
million while he had "insider" information that Qwest couldn't
hit its aggressive revenue targets. If convicted, he could be
sentenced to up to 10 years in prison and a fine of up to $1
million per count. Prosecutors also are requesting Nacchio
forfeit stock sale profits from the period.
30 - Number of trial days the case was expected to take
10 - Number of days the prosecution spent presenting its case
19 - Number of prosecution witnesses who took the stand
1 - Number of days the defense has spent presenting its case
2 - Number of defense witnesses who have taken the stand so
What the jury heard: A sample of key testimony
• FOR THE PROSECUTION
Lee Wolfe, former head of Qwest investor relations: Got
repeated questions from investors in 2000 and 2001 about how
Qwest was making its numbers. Said he sold shares in early 2001
but stopped because he thought it was wrong and had a "crisis of
Sally Anderson, former U S West and Qwest employee: Increased
her purchases of Qwest stock after receiving an e-mail from
Nacchio in September 2000 that painted a rosy picture of the
company's future. Testified she lost money but didn't say how
Robin Szeliga, former Qwest chief financial officer: Argued
with Nacchio one night until close to 3 a.m. because she
believed he was being too bullish about revenue projections and
relying too much on one-time sales. Pleaded guilty to one count
of insider trading in connection with a stock sale in late April
Greg Casey, former head of Qwest's wholesale unit: Was so
outraged by revenue goals he thought were too high, he sent an
e-mail to Nacchio and others that included just one word --
Afshin Mohebbi, former Qwest president and chief operating
officer: Wrote several memos to Nacchio expressing concern that
the company couldn't hit its targets. In one, called the goals
a "huge stretch."
Prashant Khemka, buy-side analyst at Goldman Sachs: Wrote a
pointed letter to Nacchio in July 2001 asking for details on how
Qwest was making its numbers, stating "investors don't know how
many cockroaches you still have in your bag." Said his
questions about Qwest's revenues had gone unanswered earlier in
David Weinstein, Nacchio's former investment adviser: Nacchio
told him "constantly" in 2000 and 2001 that he didn't want to
sell Qwest stock because he thought the price would go up.
Nacchio also asked him to do a "dishonest act" not explained to
the jury. (Discussions outside the presence of the jury
indicate the issue had to do with Nacchio allegedly asking
Weinstein for an invoice date to be changed so Qwest would pick
up the tab.)
• FOR THE DEFENSE
Qwest founder Phil Anschutz: Nacchio came to him in January
2001, distraught because his son had attempted suicide. Nacchio
wanted to quit Qwest but later decided to stay. Defense says
the testimony shows Nacchio had an "out" and could have left if
he knew trouble was brewing.
The Rev. Giles Hayes, abbot at St. Mary's Abbey in New Jersey:
Nacchio was with him in Appalachia giving out gifts and food to
the poor when Mohebbi sent one of his memos warning about
Qwest's aggressive financial targets.
What the jury didn't hear
• Information U.S. District Judge Edward Nottingham ruled
cannot be shared with the jury:
Restatement: In 2003, under the direction of new CEO Dick
Notebaart, Qwest restated its earnings, wiping out $2.5 billion
of revenue between 2000 and 2001. Nottingham said the
information was inadmissible because it occurred under different
management and a different accounting firm after the time frame
of the indictment. Also, the government's indictment didn't
allege Qwest's accounting was fraudulent, and Nottingham said
"if we get into these accounting issues . . . we are going to be
here a long time."
Moved assets: Nacchio "hid" $90 million in assets in February
2002 by moving them into his wife's name, according to his
former financial adviser. Prosecutors said the move showed
Nacchio had a guilty conscience; Nottingham ruled Nacchio could
have moved the assets for any number of reasons.
Lost savings: Many retirees and investors such as Sally
Anderson lost tens or even hundreds of thousands of dollars each
when Qwest's stock price fell. Anderson, a former employee, was
allowed to testify she upped her purchases of Qwest stock after
receiving an optimistic e-mail from Nacchio. But Nottingham
ruled this week he will strike her testimony and tell jurors to
disregard it because it occurred prior to the time included in
BellSouth buyback: Qwest bought back 22 million shares of its
own stock from BellSouth in 2001 for $1 billion. Prosecutors
showed Qwest borrowed the money to buy back the stock and that
if BellSouth had sold the shares on the open market, Qwest's
stock price would have dropped. But Nottingham called the stock
repurchase a "red herring" that would only confuse the jury.
Weighty evidence: The case involves so much evidence -- from
Securities and Exchange Commission filings to Qwest news
releases and e-mails -- it had to be brought into the federal
courthouse on dollies. The documents fill at least 42
three-inch binders, plus dozens of bankers' boxes.
Family men: Seated in the first row behind the defense each day
have been Nacchio's wife, Anne Esker, and son Michael, along
with a rotating group of friends and family. But Nacchio's not
the only one with a familial fan club. Prosecutor James
Hearty's wife has attended court at least twice, including to
hear her husband deliver the government's opening statement.
And prosecutor Cliff Stricklin's wife and two young sons made an
appearance this week, drawing admiring looks from at least two
Tight reign: Nottingham hasn't disappointed in providing his
trademark sharp-tongued scoldings and occasional dry-humored
observations. Defense attorney Herbert Stern has taken much of
the chastising, with Nottingham frequently barking at him to
"move on" or "sit down." But prosecutors have taken their
licks, too, with the judge once accusing Justice Department
litigator Colleen Conry of "thumbsucking."
Billable hours: With five attorneys on each side and
practically every witness having an attorney -- or two -- the
courtroom has served as a "who's who" of Denver attorneys. "I
don't know what lawyers in Denver did before this case," one of
those lawyers joked.
The defense could call one or two more witnesses -- not
including Nacchio -- on Monday.
Once testimony is complete, the jury will hear closing
arguments. Because the prosecution has the burden of proof, it
will present first, then get a chance to address the jury again
after the defense has delivered its closing. This could take a
full day. The jury then will receive instructions from
Nottingham and return to the jury room to deliberate.
Sara Burnett and Jeff Smith, Rocky Mountain News