'Classified' defense attacked
Ex-CEO didn't take secret info tack because it was 'a lie,'
By Sara Burnett and Jeff Smith
Rocky Mountain News
Friday, October 12, 2007
Former Qwest CEO Joe Nacchio didn't present a classified
information defense at his insider-trading trial because it was
"a lie," the lead prosecutor in the case said Thursday. "They
couldn't do it because if they had, it would have been proven
false," First Assistant U.S. Attorney Cliff Stricklin said.
Stricklin's comments came one day after court documents related
to Nacchio's classified defense, previously filed under seal,
were made public.
Those documents, filed by Nacchio's defense team, said Nacchio
believed when he sold stock between January 2001 and May 2001
that the company was about to receive lucrative secret
They also suggest Nacchio wanted to argue that the National
Security Agency and other clandestine government agencies never
granted Qwest the contracts because the Denver telco wouldn't
participate in a phone spying program.
Speaking at a luncheon at the Denver Athletic Club, Stricklin
said prosecutors were prepared to discredit those arguments. He
also said that if Nacchio had taken the stand, the government
could have presented evidence to prove Nacchio "a liar."
Told of Stricklin's comments, Nacchio's lead defense attorney,
Herbert Stern, said only, "If Mr. Stricklin is accurately
quoted, his remarks are untoward and unprofessional."
Stern declined to comment further.
Nacchio, who was convicted in April of 19 counts of insider
trading, is free on bail pending his appeal.
If the appellate court upholds his conviction and sentence, he
faces six years in prison, a fine of $19 million and forfeiture
of the $52 million he made on the illegal sales.
At trial, prosecutors said the CEO should have told investors
before he sold his stock that the company was unlikely to meet
aggressive revenue goals.
Nacchio's defense attorneys argued he was optimistic about the
company's future, in part because of the secret government work.
The documents released Wednesday, parts of which were redacted,
suggest U.S. District Judge Edward Nottingham prevented Nacchio
from making his argument about retaliation, ruling it was not
That left Nacchio with a dilemma -- he could testify that he
believed Qwest was in line for the government contracts but not
about his theory on why the company didn't land them. And if he
took the stand, prosecutors were free to call witnesses they
said would refute his testimony.
Nacchio opted not to present much of a defense, calling just
three witnesses and not taking the stand. But the issue of how
Nottingham ruled is part of his appeal before the 10th Circuit
Court of Appeals.
The documents released Wednesday also show that by November
2005, three years after Nacchio's ouster from Qwest, the
government had advised Nacchio's attorneys that it was
considering seeking insider-trading charges against him.
Nacchio's attorneys attempted to stave off an indictment, in
part by raising the classified-information defense for the first
In a letter dated Nov. 2, 2005, to the Justice Department,
Nacchio's attorneys wrote that the government's theory
implicated "classified information and, thus, national security
They stated that Nacchio was the only member of Qwest's senior
management cleared for classified information and that those
matters supported his "good faith belief" in the telco's revenue
prospects. They asked for time to get national security
clearance to fully debrief Nacchio on the topic.
The government didn't have much time to evaluate whether a
classified information defense would pose a problem to its case.
Prosecutors had planned to seek insider trading charges that
month. They wanted the charges to cover Nacchio's stock sales
between Jan. 1, 2001, and May 29, 2001. But the five-year
statute of limitations on those early sales was close to
After Nacchio floated the possible classified-information
defense, the feds scrambled to interview James Payne, who
oversaw Qwest's federal business group.
They conducted the interview on Nov. 14, 2005. Payne told an
FBI agent and U.S. postal inspector that he only included
contracts Qwest had won in his revenue projections and that he
was careful not to set expectations that couldn't be met.
He talked some about the speculative nature of the federal
contract business, referring to a project code-named "Ferrari"
that continually was out there as a possibility.
On Nov. 17, 2005, Stern again wrote the Justice Department,
saying that while Payne would be in the position to confirm some
of the prospective contracts, "his access is far more limited
than Mr. Nacchio's."
"I wish that I could provide the details of this information,"
Stern added, "but I am unfortunately disabled by the fact that I
cannot even interrogate my client on this area, not even for the
purpose of defending him and attempting to persuade the
Department that he should not be indicted."
Stern asked for a security clearance. But, with the statute of
limitations running out, the government couldn't wait and in
December 2005 sought an insider-trading indictment against
Stern and his team didn't get national security clearances until
later during the pretrial process.