weekend for Nacchio's team
Defense seeks to strike investment analysts' testimony
By Jeff Smith
Rocky Mountain News
Monday, April 9, 2007
Motions from Joe Nacchio's attorneys are still coming in a
flurry, even as the criminal case nears completion. Attorneys
for the former Qwest CEO on Sunday moved to rebut or strike
testimony by two investment analysts whose view of the company
changed when they found out how much it was relying on one-time
deals to make its targets in the first half of 2001.
Defense attorneys argued the analysts -- Drake Johnstone of
Davenport & Co. and Prashant Khemka of Goldman Sachs -- provided
their opinions to prosecutors in prohibition of a judge's order.
His trial is entering the fourth week, with the defense expected
to complete its case as soon as today.
Khemka testified last week that the one-time deals weren't
meaningful revenue and described Qwest's fiber-optic capacity
swaps as "bogus."
Johnstone said his view of Qwest changed when he found out in
August 2001 about the magnitude of one-time sales and swaps of
network capacity. He said the new information warranted a
downgrade from a "buy" to "sell" rating for Qwest stock. Judge
Edward Nottingham already had told the jury to disregard
Johnstone's rating change.
Nottingham had prohibited the two analysts from testifying as
experts because the government had failed to provide notice of
such expert testimony.
Defense attorneys also noted that Nottingham expressed concern
the jury would judge the importance or "materiality" of
information from the perspective of a financial analyst rather
than a "reasonable investor."
If the testimony isn't stricken from the record, the defense is
requesting it be allowed to rebut the testimony with an expert
of its own.
In a separate motion, Nottingham was asked to reconsider his
ruling requiring the defense to call a prosecution witness to
admit an exhibit countering an alleged backdating issue. The
defense said it doesn't think it should be forced to call a
"hostile" witness to the stand to get an exhibit into evidence.
Prosecutors have alleged a document certifying Nacchio didn't
possess insider information when selling $14 million of growth
stock was backdated from mid-December 2000 to Nov. 3, 2000. In
between those dates, prosecutors claim Nacchio knew Qwest's
financial condition was weakening.
What they said
Testimony from two financial analysts under fire from the
• Drake Johnstone: Downgraded Qwest stock in
2001 after learning of one-time sales and swaps of network
• Prashant Khemka: Described Qwest's fiber-optic
capacity swaps as "bogus"
smithj@RockyMountainNews.com or 303-954-5155