The Association of U S West Retirees



Jurors find Nacchio guilty in split verdict
Written by: Jeffrey Wolf , Web Producer  
Updated by: 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 request.

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 retiree.

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 was owed.

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 information.

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, witnesses testified.

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 results.

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.