The Association of U S West Retirees



Signs of life in the SEC case against Nacchio, other ex-Qwest execs

Denver Business Journal

Greg Avery

January 11, 2010


The Securities and Exchange Commission’s civil case against Joseph Nacchio and four other former Qwest executives revs up this week in Denver in advance of a summer trial.

Lawyers for the SEC and the defendants will vet three potential expert financial witnesses in hearings scheduled Tuesday, Wednesday and Thursday in Judge Marcia Krieger’s U.S. District Court room two blocks from Qwest headquarters.

The case puts someone beside Nacchio, the ex-CEO and chairman, in the legal spotlight over Qwest’s 2001 financial collapse for the first time in years.

A whole new era of corporate financial scandal and the resulting recession has passed since regulators first filed suit over Qwest’s collapse and admission of overstating $2.5 billion in revenue.

The SEC and the other defendants — former Qwest CFO Robert Woodruff, ex-COO Afshin Mohebbi and former financial reporting chiefs James Kozlowski and Frank Noyes — have been stuck with legal paper parrying since 2005, waiting for Nacchio’s insider trading criminal prosecution to be resolved.

Here’s a refresher summary of the case:

Qwest divulged in separate disclosures in the last half of 2001 that its double-digit revenue growth, which defied gravity while all else in telecom went bust, had relied on one-time fiber optic capacity swaps and one-off equipment sales. It also, the SEC says, ensured that upstart Qwest was able to buy the Baby Bell across town, US West, in 2000.

The SEC complaint says the revelations about how much Qwest relied on one-time revenue obliterated $91 billion in the telecom’s market capitalization and gutted investor, employee and retiree holdings. Regulators called it fraud, given the degree to which Qwest disguised and evaded disclosing its reliance on one-time revenue.

It sued Nacchio, Woodruff, Mohebbi, Kozlowski and Noyes for participating in the swaps and in public pronouncements that made it seem as if most of Qwest’s revenue growth was driven by sales of broadband services that generate recurring revenue.

Robin Szeliga, another former Qwest CFO, originally faced the SEC lawsuit, too, but she settled and agreed to pay the SEC $577,052 — about half what she’d been estimated to have earned over two years.

The SEC seeks to get the remaining executives to give back about $300 million in “ill-gotten gains” — salaries, stock, money from exercised stock options and the wealth produced by their receipt of stock in vendors’ companies through side deals that weren’t disclosed to Qwest shareholders.

Nacchio’s share is $216.4 million he made between 1999 and 2001.

A jury convicted Nacchio on 19 counts insider trading felonies in 2007. Nacchio’s attorneys fought the verdict in a federal appeals court (twice) and tried unsuccessfully to get it overturned by the U. S. Supreme Court.

Nacchio reported to federal prison camp in Pennsylvania last spring.

Judge Krieger is presiding over a resentencing of Nacchio because one appeal found the original trial judge, Edward Nottingham, erred in calculating the sentence of six years prison, $19 million in fines and $52 million in forfeiture.

Nacchio’s criminal conviction seems secure, even if how long he’s locked up and how much money he repays is ultimately changed.

That frees the SEC’s case to inch closer to trial in coming weeks — nine years after Qwest’s implosion.

Greg Avery — aerospace, technology and telecommunications reporter for the Denver Business Journal — can be reached at 303-803-9222 or