The Association of U S West Retirees



Ex-Qwest CEO convicted on 19 counts of insider trading
By Sandy Shore, AP
Arizona Republic
Friday, April 20, 2007

DENVER - Joe Nacchio, a former AT&T executive tapped to transform Qwest Communications into a major telecommunications competitor, was convicted Thursday of 19 of 42 insider trading charges after one-time top executives described his relentless drive to meet revenue projections without revealing financial risks.

A U.S. District Court jury deliberated six days before concluding on 19 counts that the former Qwest chief executive illegally sold stock in April and May of 2001, when he knew the company faced financial challenges and relied heavily on one-time sales to meet revenue targets.  The jury acquitted him on the other 23 counts stemming from sales in January and February.

Judge Edward Nottingham set a July 27 sentencing date for Nacchio, who is free on $2 million bail. Each count carries a potential penalty of 10 years in prison and a $1 million fine.

" 'Convicted felon Joe Nacchio' has a very nice ring to it," boasted Troy Eid, the U.S. attorney for Colorado.

Nacchio, who still faces a civil fraud lawsuit, declined to comment.  A smile sometimes crossed his face as he left the federal courthouse arm-in-arm with his wife.  They walked away together on a busy downtown street.

Jurors convicted Nacchio on counts involving trades he made after April 24, 2001 -- representing sales of 1.33 million shares for $52 million in gross proceeds.  Those were the first trades that occurred after Qwest released its financial results for the first quarter but didn't reveal how much of the revenue came from one-time sales.

Prosecutor Cliff Stricklin said the jury "saw at some point that Joe Nacchio knew what investors didn't and chose to profit from it."

"Insider trading is not a victimless crime.  It's a crime about fairness," Stricklin said.  "Many lost their hopes and dreams while others at Qwest took the easy way out."

Many former US West and Qwest employees and retirees lost savings as Qwest's share price fell precipitously starting in 2001.  Some of them applauded the verdict.

"This was our one shot at getting some sort of justice, and the retirees I know are all very gratified that this verdict has come through," said Mimi Hull, president of the Association of US West Retirees.

A civil fraud lawsuit is still pending against Nacchio, former President Afshin Mohbebbi and other one-time executives, alleging they orchestrated a financial fraud that led to the scandal.  The Securities and Exchange Commission is seeking repayment and civil penalties, with the amounts to be determined at trial.

Prosecutors wove a circumstantial case against Nacchio based on the testimony of those who worked closely with him.  Most testified either under grants of immunity in exchange for cooperation or after pleading guilty to a crime, saying they repeatedly warned Nacchio that Qwest would not meet aggressive financial targets for 2001 without relying heavily on revenue from one-time sales that came from a waning market.

Despite their warnings, Nacchio refused to lower forecasts and did not tell the public how much one-time revenue was included in earnings, the witnesses said.