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
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
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
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
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
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 5½ 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
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
"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
"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
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