Jurors find Nacchio guilty in split verdict
Jeffrey Wolf , Web Producer
Shawn Patrick , Reporter
Created: 4/19/2007 4:14:01 PM
Last updated: 4/19/2007 10:24:08 PM
DENVER – A jury found former Qwest CEO Joe Nacchio guilty on 19
of the 42 counts against him on Thursday afternoon.
He was found guilty of counts 24 through 42 of the 42 count
indictment against him and not guilty of counts one through 23.
Each of the counts carries a penalty of up to ten years in
prison and a $1 million fine. However, the sentence is expected
to be served concurrently and not consecutively.
However, 9NEWS Legal Analyst Scott Robinson says it is likely
Nacchio will serve less than 10 years.
The jury, made up of eight men and four women, started
deliberations last Thursday and made several requests, including
writing materials, more copies of the indictment and a master
list of evidence. The requests were signed by the airline pilot
who identified himself as the foreman.
U.S. District Judge Edward Nottingham set a July 27 sentencing
date for Nacchio, who is free on $2 million bond. Prosecutors
wanted the bond raised to $5 million, but the judge denied the
Nacchio's wife and son broke into sobs as the verdict was read.
Nacchio's face initially showed joy as the first counts were
read off as not guilty. His expression changed dramatically when
the first guilty verdict was read.
When leaving the courthouse, he did not comment to the media and
only gave a chuckle when asked of his opinion of the
prosecution's case. He walked next to his wife and son who both
looked at the ground.
The former head of Qwest Communications was accused of illegally
selling nearly $101 million worth of stock in 2001. Prosecutors
said Nacchio sold the stock based on inside knowledge that Qwest
was at financial risk and might not meet revenue targets.
Defense lawyers said Nacchio believed in Qwest's future and sold
the stock legally under the terms of his employment contract.
Prosecutors held a press conference after the verdict was read.
"To hear it in court that Joe Nacchio is a convicted felon -
that has a nice ring to it," said U.S. Attorney Troy Eid.
"This has been a long road to get here, but justice is finally
served," said U.S. Attorney Cliff Stricklin, the lead prosecutor
in the case. "This was about the Qwest workers who lost their
hopes and dreams, while others took the easy way out."
During the press conference, traffic could be heard on the
nearby streets and one driver shouted out of his window,
"Justice is served."
Two former Qwest employees walked by the 9NEWS crew outside of
the courtroom and had large grins after they were told what the
verdict was. One of them said, "Finally."
Many former Qwest employees who lost their retirement savings
when the value of the company plummeted say they consider
themselves Nacchio's victims.
"What I wanted was a fair verdict. Nobody wants to wish jail on
anybody. I just was hoping our justice system would work and
give him a fair trial and from what I see in the press reports,
i believe that happened," said Barbara Wilcox, a U.S. West/Qwest
The case against Nacchio was filed after the government
investigated an accounting scandal at Denver-based Qwest shortly
after it acquired U S West, a primary telephone service provider
in 14 mostly Western and midwestern states.
The Securities and Exchange Commission has said Qwest falsely
reported fiber-optic capacity sales as recurring instead of
one-time revenue between April 1999 and March 2002, which forced
the company to restate $2.2 billion in revenue.
The SEC has a pending civil fraud lawsuit against Nacchio and
other one-time executives at Qwest.
Prosecutors wove a circumstantial case based on the testimony of
those who worked closely with Nacchio - a former company
president, a one-time chief financial officer, an investor
relations executive and business unit managers.
Most testified either under grants of immunity in exchange for
cooperation or after pleading guilty to a crime, saying they
repeatedly warned Nacchio Qwest would not meet aggressive
financial targets for 2001 without relying heavily on revenue
from one-time sales. That revenue 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.
Nacchio's attorneys narrowly tailored their defense, arguing the
ambitious entrepreneur believed Qwest would succeed despite the
warnings. They said Nacchio had to sell the shares under terms
of his employment contract, particularly 350,000 growth shares
sold in early January 2001 for a little more than $14 million,
because the company chose to give him shares instead of cash he
Before trial, defense attorneys argued Nacchio, through his
membership on two government panels, was alone among Qwest
executives who knew the company could receive lucrative
contracts from clandestine government agencies. At trial,
attorneys didn't present any direct evidence about classified
Nacchio's defense presented just three witnesses. Qwest founder
Phil Anschutz and a Roman Catholic abbot testified Nacchio
wanted to resign in January 2001 to remain in New Jersey with
his family after a son attempted suicide.
The third witness was Daniel Fischel, an author and Northwestern
University professor, whose testimony about Nacchio's pattern of
stock sales was designed to counter prosecutors' argument that
Nacchio accelerated his trades ahead of the worsening financial
picture at Qwest. His calculations excluded so-called growth
shares that Nacchio sold on Jan. 2 and Jan. 3, 2001.
A former AT&T executive, Nacchio was recruited to transform
Qwest from a construction company building a fiber optic network
into a telecommunications leader at a heady time for the
industry when companies were scrambling for lucrative telephone
and Internet customers.
Nacchio oversaw Qwest's entry into public trading and its 2000
takeover of U S West Inc., fostering a new, more aggressive
atmosphere where the priorities were not just meeting but
exceeding financial targets and following a so-called "golden
rule" of never saying anything to cause the stock price to drop,
Nacchio forecast revenue growth of 15 percent to 17 percent in
2001 and set internal projections even higher, pushing business
unit managers to exceed them.
As the telecommunications market began to soften amid aggressive
competition in late 2000, competitors expressed concern that
there was not enough business to fill the growing number of
fiber optic networks carrying voice and data traffic.
In the fall of 2000, Qwest managers warned Nacchio the 2001
financial targets were unrealistic and unattainable. But the CEO
refused to reduce internal numbers or lower the forecast, they
said. One manager called a final meeting on Qwest's 2001 budget
a "sign in blood" session where division managers signed up to
meet the targets.
A key point in the prosecution's case was Nacchio's decision to
sign an irrevocable commitment in late 2000 to sell the
so-called growth shares.
Prosecutors said he decided to sell after hearing worsening news
from business managers in early December 2000 but backdated the
sales document to Nov. 3, 2000. Defense attorneys insisted that
Nacchio gave oral instructions committing to sell the shares in
November and that the document was drafted at a later time.
The remaining transactions involved vested stock options that
Nacchio exercised and sold from Jan. 26, 2001, to May 29, 2001.
About one-third of the overall amount was sold from April 24 to
April 27, just weeks after the company issued its first-quarter
As Qwest's competitors reduced their financial forecasts late in
2000 because of the weakening market, Nacchio continued to
reaffirm his company's guidance.
Two analysts testified that they repeatedly asked how Qwest was
meeting its numbers but didn't learn until August 2001 how
heavily the company relied on one-time sales to achieve them.