The Association of U S West Retirees



Ex-Qwest CEO guilty of insider trading
Nacchio faces up to 10 years, $1M fine on each of 19 counts; judge sets July 27 sentencing
St Paul Pioneer Press Staff and news reports
Article Last Updated: 04/20/2007 12:03:33 AM CDT

DENVER - Joe Nacchio, the former chief executive of Qwest Communications International, was convicted Thursday of insider trading.

A jury in U.S. District Court deliberated six days before convicting Nacchio on 19 of 42 counts of insider trading, representing $52 million worth of stock sales Nacchio made in 2001.  He was found not guilty on 23 separate counts.

Qwest, based in Denver, is the dominant phone company in Minnesota with thousands of employees and retirees in the state and region, many of whom lost thousands of dollars in retirement savings when the company imploded financially amid scandal earlier this decade, sending the stock price plunging.

"I think he should serve five to 10 years -- solid years.  It sends a signal:  'You do this and there are consequences,' " said Mary Ann Neuman, a 61-year-old Qwest retiree from New Hope.

"The actions of Joe Nacchio cost me a quarter of a million dollars," Neuman said.  "I held onto my (Qwest) stock because he told me to. ... If had sold my stock when he sold, I'd be a happy camper."

During the 15-day trial, the jury heard testimony from former Qwest executives that Nacchio exaggerated financial forecasts while simultaneously concealing Qwest's growing troubles.

Judge Edward Nottingham set sentencing for July 27.  Nacchio, released on $2 million bond, faces up to 10 years in prison and up to $1 million per count, as well as asset forfeiture the federal government is seeking.

Nacchio flashed a slight smile at reporters, but declined to comment as he left the courtroom, locking arms with the family members who flanked him.  Nacchio's lawyer, Herbert Stern, said he planned to appeal the case and would not comment further.

Qwest issued a terse statement after the verdict, saying "we respect the decision."

"Our focus is on the future as well as what we have accomplished in the past five years," the company said, referring to its struggles to avoid bankruptcy and find its spot in a highly competitive industry under present CEO Richard Notebaert.

The company added that "we will continue to carefully review all expenses submitted to us by the former CEO and his legal team."

Qwest Minnesota President John Stanoch, a former chief deputy state attorney general and former Hennepin County district court judge, declined to comment.

Nacchio, 57, was accused of selling $101 million worth of stock in the first five months of 2001 based on inside information that Qwest faced financial risks.  With the decision, the eight men and four women on the jury turned away Nacchio's claim that he believed in the company's future despite concerns voiced by business managers.

The jurors declined comment as they left the courtroom Thursday.

The criminal case stemmed from a years-long government investigation into an accounting scandal at Qwest.

Federal regulators have said Qwest falsely reported fiber-optic capacity sales as recurring instead of one-time revenue between April 1999 and March 2002.

The practice allowed Qwest to improperly report about $3 billion in revenue, which helped pave the way for its acquisition of former Baby Bell US West Inc., regulators have alleged.  Qwest later restated about $2.2 billion in revenue.

Qwest shares reached a closing high of $64.50 in March 2000.  By August 2002, shares had plunged to $1.11.  Notebaert, Nacchio's successor, averted a collapse by selling the company's phone-book unit and slashing borrowings to $17 billion from $26 billion.

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

After Thursday's verdict, the prosecution team beamed at a thicket of reporters and cameras outside the courthouse.

"Convicted felon Joe Nacchio has a nice ring to it," said Troy Eid, U.S. attorney for Colorado.  "I couldn't be happier that after 5 years, justice has finally been served.

An assistant U.S. attorney, Cliff Stricklin, who led the prosecution, said the jury's verdict proved that "insider trading is not a victimless crime."  And fellow federal prosecutor Colleen Conry said the verdict would ring out from Denver to Wall Street.

It certainly rang out in Minnesota.

"Hallelujah!" said Phyllis Kielblock of Eden Prairie, the executive assistant for the Northwestern Bell-US West-Qwest Retiree Association.

She and an estimated 18,000 to 20,000 current and retired employees of Qwest and its former incarnations blame Nacchio for nearly destroying the company and visiting financial ruin on their own retirement and investment portfolios.

"It will be some vindication that we were wronged, and he got away with something he shouldn't have," said Kielblock, who retired from the former Northwestern Bell in 1982 after 32 years with the phone company.

"But he didn't," she added with unmistakable relish. "He got caught."

"Wow!" was the initial reaction of Steve Lewsader, president of the Communications Workers of American Local 7201 in St. Paul, which represents 1,050 of Qwest's 3,500 unionized employees in Minnesota.

"I couldn't be happier," Lewsader said.  Nacchio, he said, "caused a lot of pain for employees and retirees" when his company acquired the US West in June 2000.

Nacchio's defense team was led by Stern, who contended that Nacchio was a passionately optimistic executive who may have misjudged Qwest's financial future but believed deeply in his upbeat prognostications.  Moreover, Stern asserted that Nacchio needed to sell stock because the options were scheduled to expire.

Nonetheless, prosecutors said Nacchio continually affirmed a bright financial forecast to analysts, even as the chorus of admonitions from other Qwest executives grew.

Finally, in late 2000, when he realized Qwest was facing a significant shortfall, prosecutors said, Nacchio began unloading his stock options, while still publicly proclaiming the company's good fortunes.

Nacchio even backdated the sale of the stock to make it appear unrelated to Qwest's downturn, prosecutors contended.

A civil fraud lawsuit is still pending against Nacchio, former President Afshin Mohebbi 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.

Reports from staff writer Leslie Brooks Suzukamo, the New York Times, the Associated Press and Bloomberg News were used in this story.