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Drake Tempest, left, former chief legal officer at Qwest, served under former CEO Joe Nacchio, right. Nacchio and other former top executives were named Tuesday in civil charges filed by the Securities and Exchange Commission, but Tempest was not. Tempest has figured prominently in the SEC's investigation of fraud at Qwest and may still be charged.

 

Telco's former chief legal officer might be in eye of federal storm

By Jeff Smith, Rocky Mountain News
March 18, 2005

Drake Tempest, Qwest's former chief legal officer, was a glaring omission from Tuesday's civil actions by the Securities and Exchange Commission against former top executives of the Denver telecommunications company.

After all, it wasn't long ago that the SEC and Tempest were engaged in a public tussle over his refusal to comply with a subpoena to be interviewed.

"My real disappointment is that Drake Tempest wasn't in the (SEC filings)," Nelson Phelps, executive director of the -Association of U S West Retirees, said this week. "With his closeness with Nacchio, I find it hard to believe he didn't know what was going on."

So do investigators.

The lack of a civil charge or settlement doesn't mean Tempest is in the clear. In fact, he has been the subject of a criminal investigation, and federal prosecutors may, in effect, be saving Tempest for themselves.

One source familiar with the federal investigations characterized Tempest as still a likely criminal target, while another said Tempest recently had become more "forthcoming" with investigators.

Both views may be consistent, as the U.S. attorney's office continues to investigate the conduct of Qwest's former top executives.

James Nesland, Tempest's attorney, didn't respond to a phone call and e-mails.

Federal prosecutors and FBI investigators went to New York City a couple of weeks ago to interview a high-profile target, according to a source familiar with the situation, but it's unclear whether that person was Tempest. Tempest lives in New York and works as a senior partner in the New York law firm of O'Melveny and Meyers.

Tempest, who joined Qwest in 1998 and resigned in December 2002, is a key part of the criminal investigation because of his knowledge of everything from the internal investigations of the company's swaps of fiber-optic capacity to vendor stock deals.

Qwest traded capacity on its fiber-optic network with other communications carriers. The SEC alleges many of the deals were improperly accounted for or essentially shams to inflate revenue.

Tempest made $14.3 million on stock sales and received a $1.85 million severance when he left the company.

He also had a close relationship with former Chief Executive Joe Nacchio, with one person characterizing the two as "attached at the hip."

Tempest, like Nacchio, never settled in Colorado, instead commuting from the East Coast. The two frequently traveled together and, while staying at a downtown Denver hotel, often had meals together.

"Nacchio ran everything by Drake, including how to handle the various investigations and issues related to the (fiber-optic capacity swaps)," said one source familiar with their relationship.

At annual and analyst meetings, Nacchio often turned to Tempest for help answering technical questions. Experts have said regulators would assume Tempest and Nacchio shared more than idle talk on their commutes.

Among other things, sources said, investigators have looked into allegations that Tempest withheld key documents from outside auditors and others and participated in a cover-up of alleged misrepresentations made by Nacchio and former chief financial officers Robert Woodruff and Robin Szeliga.

Nacchio's attorney, Charles Stillman, said in a statement this week that Nacchio never misrepresented the financial condition of the company. Woodruff's attorney declined comment, and Szeliga's attorney didn't return a phone call.

Qwest's settlement of fraud allegations with the SEC last fall alludes to an alleged concealment between fall 2001 and spring 2002 by Qwest senior management of improper accounting of fiber-optic capacity deals such as one with Cable & Wireless.

The SEC complaint refers to Qwest "quietly" settling with Cable & Wireless on the eve of filing its 2001 annual report in March 2002 to avoid a possible unraveling of the alleged scheme.

At one point, prosecutors were investigating evidence of possible document destruction linked to Qwest's legal department, sources say, but copies of many documents were found. Because duplicates were found, it could be difficult to prove criminal intent and obstruction of justice.