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Feds say fraud isn't part of Nacchio case
Prosecutors write that the ex-Qwest CEO's claim of what's needed to prove insider-trading charges isn't true.
By Greg Griffin, Staff Writer
Denver Post
Saturday, January 21, 2006

The government will not try to prove accounting fraud in its criminal insider-trading case against former Qwest chief executive Joe Nacchio, prosecutors said in a filing Thursday.

"The defendant asserts that the government will have to prove that Qwest falsely and deliberately reported its financial results with the defendant's knowledge.  This is not true. ... This case does not involve proof of accounting irregularities or fraud," the government wrote in a status report filed on the eve of a hearing on evidentiary and witness issues.

"Even if Qwest accurately reported its financial results, disclosed every fact required to be disclosed by law ... the defendant is still criminally responsible for insider trading if he was aware of material inside information at the time of his trades," the government said.

The filing was a page longer than the government's Dec. 20 indictment against Nacchio and shed more light on how prosecutors plan to execute their case against Nacchio, who was Qwest's CEO from 1997 to 2002.

Nacchio is charged with 42 counts of illegal insider trading for sales of $100.8 million in Qwest stock between January and May 2001.  Prosecutors say during that time Nacchio knew that Qwest was in worse financial shape than he and the company were reporting to the public and could not possibly meet performance expectations.

Nacchio has pleaded not guilty to each charge.

Nacchio's lawyers could not be reached for comment late Thursday.

In their Thursday filing, prosecutors said they plan to present evidence in 11 areas, including source documents proving Nacchio made the trades;  Qwest policies on insider trading;  public financial disclosures by Qwest and analyst reports;  internal Qwest documents showing what Nacchio knew about the company's financial condition;  internal documents related to the lowering of Qwest's stock guidance in September 2001;  Qwest codes of conduct;  minutes from meetings of Qwest's board of directors;  grand jury transcripts;  Qwest video- and audiotapes;  reports of interviews with law-enforcement officials;  and Nacchio's electronic calendars.

Also in the filing, prosecutors said Nacchio knew when he made the trades that "Qwest's financial targets for 2001 were a 'huge stretch' to begin with, that Qwest could not make its 2001 targets unless recurring revenue sources increased significantly and at a greater rate than Qwest had historically achieved."

"In fact, all the things the defendant was warned about, and which were undisclosed, came to pass to the detriment of Qwest's shareholders," prosecutors said.

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

http://www.denverpost.com/business/ci_3419714