The Association of U S West Retirees



Nacchio found guilty
By Rocky Mountain News
Thursday, April 19, 2007

For a few minutes Thursday afternoon, Joe Nacchio dared to smile.  Seated between his attorneys, the former Qwest CEO and one-time titan of the telecom industry looked hopeful as U.S. District Judge Edward Nottingham read verdicts of not guilty to the first 23 counts of insider trading.  In the first row behind the defense table, Nacchio’s son Michael put his head in his hands and sobbed with relief.

Then the hammer dropped.  Nottingham read 19 consecutive guilty verdicts — enough to send Nacchio to prison for 10 years or more.  He also could be ordered to pay up to $19 million in fines and forfeit the $52 million in proceeds from the 19 illegal sales.

His smile gone, Nacchio sat expressionless for much of the rest of the proceeding.  When it was over, he stood beside his wife, who put one arm around him, and walked quietly from the federal courthouse, his son and attorneys beside him.

"I’m not going to make any statements," he said.

His lead defense attorney, Herbert Stern, said only: "We’ll certainly appeal."

Nacchio, who is free on $2 million bail, is scheduled to return to Denver for sentencing July 27.

Outside the courthouse lead prosecutor Cliff Stricklin said justice had been done for the people of Colorado and for every investor who lost money in Qwest stock while Nacchio profited.

"Insider trading is not a victimless crime," Stricklin said.  "There were victims here, lots of them, who lost their hopes and dreams while other people at Qwest took the easy way out and committed crimes."

Nacchio was charged with 42 counts, one for each time he sold Qwest stock between Jan. 2 and May 29, 2001.  He grossed $100.8 million from the sales.

Prosecutors said Nacchio knew when he sold the stock that Qwest was headed for financial trouble because the company was relying too heavily on unsustainable one-time deals to make its numbers.  The CEO should have shared that information with investors before he sold, they argued.

The jury of eight men and four women acquitted Nacchio on the 23 charges stemming from stock sales during the first quarter of 2001.

But they returned guilty verdicts on the trades that occurred after the end of the first quarter — a point at which Nacchio was "loaded up" with inside information that the 2001 earnings projections were an impossibility, Stricklin said.

The jury deliberated for six days before announcing around 4 p.m. that it had a verdict.  Several jurors, reached outside the courthouse, declined to comment.

The government called eight former Qwest executives to the witness stand during nearly four weeks of testimony, most of whom testified under immunity or plea deals.  They included Lee Wolfe, the former head of investor relations, former Chief Financial Officer Robin Szeliga, and former President and Chief Operating Officer Afshin Mohebbi.

Szeliga and Mohebbi, as well as the former heads of various Qwest business units, told jurors they warned Nacchio throughout late 2000 and early 2001 that the company was unlikely to meet its goals.  As early as September 2000, Szeliga said, top executives were estimating the company would be $1 billion short of the $21.3 billion to $21.7 billion in revenue projected for 2001.

Mohebbi said he wrote several memos to Nacchio, including one in which he described the projections as a "huge stretch."

Investors repeatedly asked Qwest officials to reveal how much of its growth was coming from the so-called "one-timers," Wolfe told jurors.  But Nacchio didn’t reveal the extent to which Qwest was relying on one-timers until August 2001.  The following month, he lowered Qwest’s guidance to Wall Street.

Nacchio’s defense attorneys argued he was an entrepreneurial CEO who believed the company could reach its aggressive growth targets.

The executives who raised red flags, they said, were referring not to the guidance Qwest gave Wall Street but to higher, internal targets.  Those numbers were used to determine whether employees received bonuses, so they had an incentive to convince Nacchio to lower them, the defense said.

The defense presented just three witnesses, who gave a total of about four hours of testimony.  They included Qwest founder Phil Anschutz;  a priest who works at the private New Jersey school Nacchio’s sons attended;  and a paid consultant who testified about Nacchio’s stock sales.

Anschutz told jurors Nacchio came to him in January 2001 in tears and wanting to quit because one of his sons had attempted suicide.  Stern said during his closing argument that if Nacchio knew, as prosecutors allege, that Qwest’s stock price was about to fall, he could have left the company that day, cashing out hundreds of thousands of valuable options.

"If he had a corrupt heart, if he was a man who was intent on cheating people, covering up, finding ways to slime on, he had the perfect out," Stern said.

But prosecutors noted that Nacchio didn’t leave.  Instead, he signed a new contract with a larger salary and bonus and later received more stock options.

By April 2001, they said, Nacchio was unloading stock at a rate three times faster than the previous year.

Nacchio's conviction is the latest in a crackdown on corporate fraud that began when Enron Corp. collapsed in 2001.  Dozens executives have been convicted, including four ex-CEOs: Nacchio, Enron’s Jeffrey Skilling, Bernie Ebbers of WorldCom Inc. and John Rigas, founder of Adelphia Communications Corp., the cable-TV company that at its end was headquartered in Greenwood Village.

After Thursday’s verdict, U.S. Attorney for Colorado Troy Eid thanked the prosecution team and the special agents from the FBI and postal inspector’s office who worked the case, some for more than five years.  Prosecutors also thanked the jury for what Eid called "an overwhelming determination of guilt."

"Today, 12 very courageous jurors sent a message from right here in Denver, all the way to Wall Street and inside every corporate boardroom in America that nothing short of a level playing field will be tolerated," prosecutor Colleen Conry said.  "Joe Nacchio got that message loud and clear today.",1299,DRMN_4_5493912,00.html