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Busy 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 defense:

  Drake Johnstone:  Downgraded Qwest stock in 2001 after learning of one-time sales and swaps of network capacity

  Prashant Khemka:  Described Qwest's fiber-optic capacity swaps as "bogus" or 303-954-5155,2777,DRMN_23910_5473212,00.html