AUSWR
The Association of U S West Retirees
 

 

 

Prosecutors Fault Key Defense Tactic Of Qwest Ex-CEO
By SHAWN YOUNG
Staff Reporter of THE WALL STREET JOURNAL
Tuesday, January 24, 2006

Federal prosecutors called irrelevant a key element of the defense that former Qwest Communications International Inc. Chief Executive Joseph Nacchio plans to mount against criminal insider-trading charges, court documents unsealed yesterday said.

Mr. Nacchio, who is pleading not-guilty, is accused of selling $101 million of the Denver-based phone company's stock in 2001 while he had insider information that the firm wasn't doing as well as its public statements indicated.

Mr. Nacchio's attorneys have said in court that his defense will rest partly on a claim that he expected the company to do well despite its difficulties because he had secret information about classified, national security-related contracts he believed Qwest would win.

The unsealed documents provided the first glimpse of how U.S. Attorney William Leone plans to rebut the unusual national-security argument and suggests other prosecution tactics. Having potentially positive insider information doesn't shield a defendant against an accusation of trading on negative insider information, Mr. Leone argued.

Mr. Leone also said government contracts made up only about 1.5% of Qwest's revenue, and classified contracts were an even smaller portion -- nowhere near enough to cancel out the company's mounting revenue problems. In any case, prosecutors said, such contracts would have been included in Qwest's internal and external projections, even if specifics about them remained secret. Mr. Leone said that as long as Mr. Nacchio had inside information, he was barred from selling.

Mr. Leone also noted that executives who, like Mr. Nacchio, sell on a prearranged schedule lose much of their protection against insider-trading charges if they interrupt the schedule, then later resume trading. Mr. Nacchio's defense is likely to stress that he traded openly and on a schedule. But Mr. Leone's filing said changes to a schedule suggest that the seller could have been trying to time the market or tailor trades to match events.

Qwest restated $2.2 billion in earnings and $2.5 billion in revenue for 2000 and 2001. Mr. Nacchio hasn't been accused of falsifying the company's books. Each of the 42 insider trading counts against him carries a potential sentence of 10 years in prison, and prosecutors are seeking $101 million in restitution. A trial date hasn't yet been set in U.S. District Court in Denver.

In a defense filing that was also unsealed Monday, Mr. Nacchio's attorney Herbert Stern said Mr. Nacchio plans to show, among other things, that Qwest's publicly disclosed financial information was accurate. The defense filing says prosecutors will need to show that fraud was occurring and Mr. Nacchio knew about it.

Write to Shawn Young at shawn.young@wsj.com

http://online.wsj.com/article/SB113807171185654374-search.html?KEYWORDS=Qwest&COLLECTION=wsjie/6month