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Qwest faced "big problems"
In it's insider-trading case against Joe Nacchio, the government shows an e-mail advising him to "crank up" revenue.
By Greg Griffin, Staff Writer
Denver Post
Tuesday, January 24, 2006

Qwest's former president warned then-chief executive Joe Nacchio by early 2001 that the company faced "big problems" if it didn't "crank up" its revenue from operations, according to court filings released Monday. 

In an e-mail, then-president Afshin Mohebbi told Nacchio that the company needed $ 580 million in one-time revenue items to make its first-quarter target of $5.1 billion.

"It's doable but if we don't crank up recurring growth by April, we got big problems," Mohebbi wrote.

The e-mail is one of several pieces of government evidence unsealed by the court Monday in the criminal insider-trading case against Nacchio.

Prosecutors say that when Nacchio sold $100.8 million in Qwest stock from January 1002 to May 2001, he was aware of, but did not disclose to the public, the company's looming financial crisis.

Nacchio has pleaded not guilty.  He is free on $2 million bond.  Mohebbi has agreed to testify for the government.

The previously undisclosed e-mails appear to show Qwest executives scrambling to make their targets by booking one-time revenue items, such as sales of network fiber-optic capacity.  Those deals, booked upfront before cash was received, are the focus of a separate Securities and Exchange Commission action against Nacchio, Mohebbi and others.

In a Jan. 2, 2001, e-mail to then-chief financial officer Robin Szeliga, also unsealed Monday, Mohebbi also referred to one-time deals.

"We have done a great job of doing the one time things and that cannot continue," he said.  "We need the recurring to take off big time by end of first quarter or we are screwed."

In its indictment, the government did not charge Nacchio with accounting fraud related to the one-time deals.  But the criminal insider-trading case hinges on whether Nacchio, at the time he sold his stock, was aware of important financial information about the company that wasn't disclosed to the public.

The disclosures were made in a group of documents unsealed Monday on a judge's order.  The government is trying to thwart Nacchio's effort to use a national-security-based defense.

In their filing, prosecutors argued that Nacchio's attorneys should not be allowed to introduce as evidence classified documents related to Qwest's government contracts.

"Classified information is wholly irrelevant to the issues framed by the indictment," prosecutors said.

Nacchio's attorneys are seeking federal security clearance to review classified documents related to Qwest's government contracts.  At the time of this stock sales, Nacchio sat on an industry panel that advised the government on security issues.

Naccio wants to use the classified information to argue that his rosy outlook for Qwest in 2001 was based on his knowledge that the company was in line to receive large contracts.

"Mr. Nacchio's knowledge as respects certain anticipated government contracts is one of the key elements to his defense," his attorneys said in a filing also unsealed Monday. 

The government, however, said that classified contracts accounted for less than 1 percent of Qwest's revenues in 2001 and were not expected to grow.

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

http://www.denverpost.com/business/ci_3430731