Nacchio case mantra: Keep it simple
Prosecutors want to make sure jury understands story
By Jeff Smith
Rocky Mountain News
Saturday, February 24, 2007

Prosecutors for the insider trading case against former Qwest Chief Executive Joe Nacchio know firsthand the pitfalls of a corporate fraud case:  jury-numbing complicated accounting issues, ambiguous evidence and disharmony among prosecutors.  Simpler is better.  That's the mantra learned by the Justice Department's corporate fraud task force, formed by President Bush in July 2002 in response to Enron and other corporate scandals.

"The key is to identify and clearly define the crime -- which may be the subset of all that might have gone wrong in a given company," said John Hueston, co-lead prosecutor in the successful prosecution of Enron's Ken Lay and Jeffrey Skilling.  "That was the challenge with Enron."

The Nacchio case will be tried, beginning March 19, by a combination of prosecutors in the U.S. attorney's office in Colorado and prosecutors from the criminal fraud section of the Justice Department in Washington.

Federal prosecutors from the Denver office fared poorly in the conspiracy and fraud trial of four midlevel Qwest executives in 2004, failing to win a single conviction.

But they have won four guilty pleas since, including a count of insider trading against former Qwest Chief Financial Officer Robin Szeliga during the same period Nacchio is accused of illegally selling stock.  None of the four has served more than probation and house arrest, though.

Cliff Stricklin was brought in last August by new U.S. Attorney for Colorado Troy Eid to take the lead in the Nacchio case.  He replaced William Leone, who returned to private practice.

Stricklin was the co-lead prosecutor on the losing end of the Enron Broadband case but was part of the victorious Enron task force team that won convictions against Lay and Skilling.

A key member of the Nacchio prosecution team will be Colleen Conry, a veteran litigator from the Justice Department.  Conry was co-prosecutor in the unsuccessful case against Richard Scrushy, former CEO of HealthSouth.  She has had recent victories, including the conviction of four New Hampshire technology executives this winter on accounting fraud-related charges.

Keeping with the simple theme, the charges against Nacchio are narrow in scope, and the original indictment was a bare-bones six pages.  The indictment was so brief, in fact, that prosecutors later were ordered by a federal judge to add detail.

Former Enron prosecutor Hueston, now the litigation partner at Irell & Manella, said a narrow focus can work to the advantage of prosecutors as long as they can present an "understandable story" to the jury.

But "you certainly don't want to oversimplify either," he said.

To help to make the story understandable to the jury, prosecutors have been lining up potential witnesses who lost hundreds of thousands of dollars of their retirement savings when Qwest shares plummeted from $66 in March 2000 to $1 by the summer of 2002.

Conversely, a narrowly focused case isn't a guarantee the trial won't get mired in details and ambiguity that cause jurors' eyes to glaze over.

Former federal prosecutor Chris Bebel in Texas said in a recent interview the government's big challenge will be proving beyond a reasonable doubt that Nacchio was motivated to sell his stock because he knew Qwest was faltering.

"The government has to show a guilty mind, an intent to defraud -- that will be part of the jury instructions," Bebel said.

The folksy prosecutor

Stricklin, 42, is a former Texas state judge who became part of the Enron task force.

In the Enron Broadband case in 2005, Stricklin failed to win convictions against the five former executives on trial.  Three were acquitted on some charges, and the jury deadlocked on charges against the other two.

During the trial, the prosecution presented a videotape it said had been shown to stock analysts in 2000 when it hadn't, a mistake Stricklin apologized for in his closing arguments.  Stricklin also had to rebut defense arguments that some of the prosecution witnesses had tailored their testimony out of fear of being charged themselves.

But one legal expert told the Houston Chronicle newspaper that the verdict was simply an example of the difficulty of prosecuting such a complex case.  Stricklin had asked the judge to order the jurors to keep deliberating, but the judge felt the nearly 24 hours of deliberation over four days was enough.

Since then, one former Enron Broadband executive has been convicted and one acquitted on retrial, but the conviction recently was overturned.  The other three are trying to get their cases dropped but face possible retrial.

Stricklin wasn't one of the lead prosecutors in the Lay and Skilling case last year.  He primarily handled the jury selection and a number of character witnesses.  Stricklin is the only one of the four main prosecutors on that team who hasn't gone on to a lucrative job with a private law firm.

Asked last August why he decided to take on the Nacchio case rather than go into private practice, Stricklin said:  "I think this is really an important case.  Insider trading affects the integrity of our stock market and, more importantly, really attacks our sense of fair play.  I certainly thought about private practice.  But really making a difference meant more to me right now."

Stricklin's comments to the Rocky Mountain News earned him a rebuke at his first hearing in front of Denver U.S. District Judge Edward Nottingham.  Stricklin seemed to take the scolding in stride.

In November, Stricklin traveled to Malawi for two weeks, where he helped the Justice Department with anti-corruption training there.  The trip had been planned before he took the job in Colorado.

He's long had an interest in using his skills to help people in developing countries, and he noted the Bush administration has placed an emphasis on Africa.

"Being an attorney is what I do but not who I am," said Stricklin, who is the son of a Baptist minister in Dallas.  "I think all of us could use our talents and abilities to help other people."

Hueston said he believes one of Stricklin's strengths in the Nacchio trial will be his ability to establish a rapport with a jury.

"He has a folksy, warm style and great instincts so he will likely have a great appeal to the jury," Hueston said.  "He's a quick thinker on his feet."

The smart prosecutor

Conry also is expected to play a key role.

One of Scrushy's attorneys, Lewis Gillis of Birmingham, Ala., characterized Conry as someone who conducted herself very professionally in the HealthSouth trial but was on a prosecution team that could be seen bickering at times.

Conry was "too smart for the group she was with, a bad fit for the group she was with," Gillis said.  "They were on different sheets of music."

Gillis described the prosecution team as a whole as being a "fish out of water.  They didn't really understand how to try a case on the street level.  There were more ivory tower, intellectually speaking above the jury . . . a little too arrogant."

Conry seemed more organized than the other prosecutors, Gillis said, but had to "hurriedly" examine her witnesses after the lead prosecutor ran over time.  "If there was anything negative about her, it's that she talks too fast," Gillis said.

Since HealthSouth, Conry has had multiple victories, including successful convictions in December of four former senior executives of Enterasys Networks Inc., a computer network products company formerly based in Rochester, N.H.

Conry, a certified public accountant, is an accounting fraud expert, and there are parallels with the cases she has handled and Qwest.

Enterasys, like Qwest, allegedly created "secret side letters" with customers that resulted in the inflated booking of revenue.  HealthSouth also was a revenue- and profit-inflation case.  But it's unclear whether those issues will play a critical role in the Nacchio case.

Conry made the closing arguments in the Enterasys case, pointing out that the executives had become "obsessed with hitting the numbers."

Nacchio also has been accused of being obsessed with hitting revenue-growth numbers.

Other key courtroom prosecutors in the Nacchio case are expected to include James Hearty, an assistant U.S. attorney for Colorado, and Leo Wise, a Justice Department trial attorney.

Hearty has worked on the Qwest criminal case since the original investigation in 2002 and was one of the prosecutors of four midlevel Qwest executives in 2004.  That six-week trial bogged down in accounting details, and the jury acquitted two of the executives of all charges, and was deadlocked on some of the charges against the other two.

But Hearty since has helped prosecutors secure guilty pleas against four former Qwest executives, including the insider-trading plea by Szeliga.

Wise, who is just a couple of years out of law school, is a rising star in the Justice Department's fraud litigation group and already has played a role in a successful tobacco litigation case and the Enron case.

U.S. vs. Joe Nacchio prosecution team at a glance

•  Lead prosecutor Cliff Stricklin, first U.S. assistant attorney, Colorado

Age:  42
Education:  Baylor University, Washington & Lee School of Law
Career:  First U.S. attorney for Colorado since 2006.  Before that, Justice Department's Enron Task Force, state district judge in Texas, assistant U.S. attorney in eastern district of Texas.
Key cases:  Co-lead prosecutor in largely unsuccessful Enron Broadband trial, one of four prosecutors in successful fraud and conspiracy trial of former Enron executives Ken Lay and Jeffrey Skilling.

•  Colleen Conry, senior litigation counsel in Justice Department's fraud section

Age:  44
Education:  Ohio State University, Boston College Law School
Career:  Justice Department criminal division attorney since 2004.  Previously in Justice Department's civil division.
Key cases:  Co-prosecutor in unsuccessful prosecution of Richard Scrushy, former CEO of HealthSouth.  Lead prosecutor in successful fraud conviction of four former senior executives of Enterasys Networks Inc. of New Hampshire.

• James Hearty, assistant U.S. attorney for Colorado, chief of major crimes section

Age:  38
Education:  Colorado State University, University of Colorado Law School
Career:  Assistant U.S. attorney for Colorado since 2002. Before that, worked for the U.S. Department of Justice in civil fraud section, consumer litigation.
Key cases:  Co-prosecutor in fraud and conspiracy trial of four former midlevel Qwest executives, co-prosecutor in plea agreement by former Qwest Chief Financial Officer Robin Szeliga.

•  Kevin Traskos, assistant U.S. attorney for Colorado

Age:  36
Education:  Yale University, University of Michigan Law School
Career:  Assistant U.S. attorney for Colorado since 2002 and deputy chief of the civil division since 2006.
Key cases:  This week defended the U.S. Commerce Department in an employment discrimination allegation. Has been representing the National Archives in connection with the housing of documents related to the civil litigation over the 1999 Columbine school shootings.

• Leo Wise, trial attorney in Justice Department's fraud section

Age:  30
Education:  Johns Hopkins University, Harvard Law School
Career:  Justice Department trial attorney since 2004. Before that, law clerk to a federal judge in Pennsylvania.
Key cases:  Member of the team that successfully prosecuted the U.S. cigarette industry.  Member of Enron Task Force that successfully prosecuted Jeffrey Skilling and Ken Lay.

Background

•  Cliff Stricklin last fall traveled to Malawi to advise in anti-corruption efforts there.

•  James Hearty has worked on the Qwest criminal case since the beginning in 2002.

•  Colleen Conry is fresh from a successful corporate fraud prosecution in New Hampshire.

•  Leo Wise is a commissioned officer in the U.S. Navy reserve intelligence program.

•  Kevin Traskos is married to Melissa Hart, a University of Colorado associate law professor and a granddaughter of the late Archibald Cox Jr., Watergate special prosecutor.

Trial outcome in high-profile cases

Scorecard of some major fraud-related and insider-trading cases prosecuted since 2002.  Titles reflect the person's position at the time of the alleged crimes.

•  Adelphia founder John Rigas, 15 years;  son Tom Rigas, 20 years

•  Cendent Corp. Vice Chairman Kirk Shelton, 10 years

•  Dynegy tax lawyer James Olis, sentence cut on appeal from 24 to six years

•  Enron Chief Executive Jeffrey Skilling, 24 years, four months

•  Enron Chairman Ken Lay (conviction tossed because of his death near Aspen)

•  ImClone Chief Executive Sam Waksal, insider trading, seven years

•  Martha Stewart, five months (perjury)

•  Rite Aid chief counsel Franklin Brown, 10 years

•  Tyco Chief Executive Dennis Kozlowski, 8½ to 25 years; first trial ended in hung jury

•  WorldCom Chief Executive Bernie Ebbers, 25 years

•  Computer Associates Chief Executive Sanjay Kumar, 12 years; several other executives also entered guilty pleas

•  Dynegy finance executive Gene Foster, 15 months; accountant Helen Sharkey, 30 days

•  Enron Chief Financial Officer Andrew Fastow, 10 years

•  HealthSouth: More than a dozen employees, house arrest/probation

•  Qwest Chief Financial Officer Robin Szeliga, house arrest/probation (insider trading)

•  Qwest Executive Vice President Marc Weisberg, house arrest/probation

•  Qwest finance executive Grant Graham, probation (after hung jury)

•  Qwest sales executive Thomas Hall, probation on misdemeanor (after hung jury)

•  Rite Aid Chief Executive Martin Grass, eight years; four other executives entered guilty pleas.

•  AOL executives Ken Wakeford and John Tuli, acquitted

•  Enron Broadband, hung juries on five, one acquitted on retrial

•  HealthSouth Chairman and CEO Richard Scrushy, acquitted

•  Qwest executives Bryan Treadway and John Walker, acquitted

•  Arthur Andersen (improper jury instruction)

•  Credit Suisse First Boston investment banker Frank Quattrone (flawed jury instruction)

•  Enron Broadband finance executive Kevin Howard (after being retried and convicted)

•  Four Merrill Lynch executives, charged with Enron-related fraud

smithje@RockyMountainNews.com or 303-954-5155

http://www.rockymountainnews.com/drmn/tech/article/0,2777,DRMN_23910_5374875,00.html