Weisberg indictment alleges fraud, money laundering
By Jeff Smith
Rocky Mountain News
Saturday, February 19, 2005
A federal grand jury has indicted a former senior Qwest executive on charges he secretly pocketed low-priced stock from suppliers at the expense of the Denver telecommunications company and its shareholders.
Marc B. Weisberg, former executive vice president of corporate development, is the highest Qwest executive to be accused of wrongdoing in the three-year-old federal probe of the company.
The indictment, returned by the grand jury late Thursday and announced Friday morning, charges Weisberg, 47, with eight counts of wire fraud and three counts of money laundering. In a 12th count, prosecutors are seeking the forfeiture of Weisberg's $2.9 million in alleged profits, either in cash or property such as the family's villa on the Cayman Islands.
In some cases, Weisberg is accused of secretly steering low-priced stock to family and friends - even his wife's personal trainer. He also is accused of secretly using his power and influence to make such stock allocations a condition for suppliers to do business with Qwest. The indictment doesn't allege the vendors did anything wrong.
The maximum penalty for wire fraud is five years in prison, while the maximum for money laundering is 10 or 20 years depending on when the crime occurred. But if Weisberg is convicted, the actual sentence would be determined by a judge, and Weisberg would be unlikely to get the maximum.
Weisberg, of Cherry Hills Village, surrendered to the FBI on Friday morning and was led into Denver federal court in handcuffs. He appeared relaxed but didn't speak except to say "OK" when Magistrate Patricia Coan suggested he read the terms of his bond agreement carefully.
Coan released Weisberg on a $1 million unsecured bond. Weisberg, who already had surrendered his passport, agreed not to leave the United States without court permission. He is scheduled to be arraigned next week.
Weisberg didn't comment after the initial hearing but issued a one-paragraph statement through his attorneys, saying throughout his tenure with Qwest he worked "diligently and aggressively to further the financial and business strengths of the company."
"No one relishes the prospect of being singularly targeted by the government," Weisberg stated. "But I have abundant trust and confidence in our system of justice, and I look forward to clearing my good name when the facts of this case come out in court."
Before the indictment, prosecutors had nixed a deal in which Weisberg had agreed to plead to a felony in exchange for no jail time, according to sources, and stepped up pressure on Weisberg for information on former Qwest Chief Executive Joe Nacchio.
Acting U.S. Attorney William Leone denied a report that he had personally told Weisberg he would go to jail if he didn't provide some dirt on Nacchio. Nacchio has denied any wrongdoing.
Weisberg evaluated and managed Qwest's corporate investments between 1999 and 2001.
Lucrative investment opportunities included preferential "friends and family" shares allocated when technology companies sold stock to the public for the first time. At the time, technology stocks often soared in value on the first day of trading.
Qwest also often negotiated for an equity position in a technology supplier prior to entering into a commercial agreement with that company. In some circumstances, Qwest permitted employees to invest in those vendors but required them to disclose potential conflicts of interest and projected profits.
The indictment doesn't allege any of those practices were illegal per se, but it alleges Weisberg "secretly used his position, power and influence as a Qwest corporate officer to personally profit" and deprive Qwest and its stockholders of the benefits. The indictment lists a number of companies in which Weisberg allegedly seized the opportunity to buy low-priced stock for his own account, including Alteon Web Systems, ONI Systems Corp., Rhythms NetConnections and Tellium.
Prosecutors allege Weisberg also persuaded Rhythms in April 1999 to allocate stock to his parents, father-in-law, children and secretary without Qwest's knowledge or approval. In May 2001, Weisberg allegedly secretly got Tellium, a Qwest vendor, to allocate stock to his wife's personal trainer, brother-in-law and secretary.
In the case of now defunct Arapahoe County-based Rhythms NetConnections, a high-speed Internet provider, prosecutors also accuse Weisberg of secretly using his position to make the investment opportunities a condition of a multimillion-dollar commercial agreement negotiated by Weisberg.
Weisberg is charged with similar "pay-to-play" tactics with Redback Networks, Tellme Networks, CacheFlow Inc., CoSine Communications and Mahi Networks. In the case of Mahi, Weisberg obtained stock options.
Prosecutors also accuse Weisberg of destroying incriminating personal and corporate records, threatening to fire an employee who attempted to disclose his conduct with one vendor and making false statments about certain business expenses charged to Qwest.
The money-laundering charges relate to allegations that Weisberg disguised the location and source of proceeds, some of which went to buy a Mercedez-Benz and pay for electrical services at the Cayman Islands retreat.
Because the indictment alleges Weisberg's conduct was illegal, rather than the vendor-stock and vendor-investment practices themselves, it's unclear if prosecutors will go beyond Weisberg in connection with this case.
Other Qwest executives and directors also benefited from stock allocations but previously have defended the practice as proper and routine during the time.
Qwest founder Phil Anschutz's investment firm had investments in some of the same companies listed in the Weisberg indictment, such as CoSine Communications and Mahi Networks. Anschutz's office previously has defended the investments as proper.
Anschutz Family Investment made about $3.3 million when it sold its CoSine stock, according to regulatory filings. The amount invested in Mahi is unknown. Mahi's chief executive told the Rocky Mountain News in 2003 that no undue influence had been applied to Mahi by the Anschutz fund.
Weisberg is the fifth former Qwest executive to face federal charges. John Walker and Bryan Treadway were acquitted last April of criminal fraud and conspiracy. Thomas Hall pleaded guilty in September to falsifying documents and was sentenced to probation. Grant Graham worked out a plea agreement to a single felony with probation but hasn't been sentenced.