Qwest's ex-CEO accused of massive financial fraud
By Greg Griffin,  Staff Writer
Denver Post
Thursday, June 2, 2005

Former Qwest chief Joe Nacchio came out fighting Wednesday, attacking the government's fraud case against him and other former executives as a collection of unsupported allegations.

In a brash and aggressive style typical of Nacchio, the New York native's attorneys asked a federal judge to dismiss the charges as groundless.  They also took shots at the U.S. Securities and Exchange Commission, which sued a handful of former Qwest executives in March.

"Having investigated Qwest for several years, the SEC obtained massive discovery before bringing this case, including extensive investigative testimony and millions of documents.  After all that, its complaint against Nacchio is not well-pleaded," the filing said.

Nacchio's attorneys added that the government's case against him "is very limited," focusing on his public statements about Qwest's revenue growth rather than on his alleged involvement in any fraud.

"The complaint fails to allege any facts showing that Nacchio circumvented or failed to implement a system of accounting controls at Qwest (much less that he did so 'knowingly',)" they said.  "The complaint does not allege that Nacchio knew about or participated in any wrongdoing involving any transactions."

The SEC alleges that Nacchio and other Qwest officials inflated revenues by $3 billion by portraying one-time sales of capacity on the company's fiber-optic network as recurring revenue.

The government described Qwest under Nacchio as "a culture of fear," with subordinates desperate to meet his demands to hit revenue targets.

The SEC seeks to have the executives repay stock-sale profits and other gains.  In Nacchio's case, stock-sale profits alone amounted to more than $176.5 million in the period covered by the SEC's probe.

Nacchio's filing was among five motions for dismissal filed in the case Wednesday in U.S. District Court in Denver.

Also filing were former Qwest president Afshin Mohebbi, former chief financial officers Robin Szeliga and Robert Woodruff, and former accountant Frank Noyes.  Former accountant James Kozlowski already has filed a motion to dismiss.

Former Qwest wholesale chief Gregory Casey has reached a settlement with the government, as did a handful of others named in the government's investigation.

Legal experts said defendants in such cases usually seek dismissal.  In this case, the defendants are unlikely to succeed, said University of Denver law professor Jay Brown.

"They have to try this," he said.  "What they might get out of it is that the judge could dismiss some of the claims and make it a more focused case."

Brown, a former SEC attorney, said the aggressive tone in Nacchio's filing is not unusual in a case with high stakes.

"This is what a good lawyer would do," he said.  "It says to the SEC that they're going to take every opportunity they can."

Mohebbi said the government's case against him is weaker than those against others.

"Unlike many of his co-defendants, Mohebbi is not alleged to have participated in the broader schemes of hiding the 'true source of Qwest's revenue and earnings growth'," the motion said.

Szeliga requested the government refile its case with more details, saying its 50-page complaint lacks particulars and a clear presentation of the allegations.

Woodruff filed a short motion, claiming that the case against him should be dismissed because he left Qwest in March 2001, before much of the alleged fraud occurred.

Noyes' motion claims he was not senior enough at Qwest to commit massive fraud.

"He is accused of buying millions of dollars worth of (fiber capacity rights) when in   fact he had no authority to buy anything other than his office supplies," his filing said.

Staff writer Greg Griffin can be reached at 303-820-1241 or ggriffin@denverpost.com.