AUSWR
The Association of U S West Retirees
 

 

 

A tumultuous tenure
By Rocky Mountain News
Saturday, March 17, 2007

Joe Nacchio took Denver and the telecom industry by storm.  Qwest went public in 1997 and manufactured a deal to acquire U S West.  The stock moved from the Nasdaq to the NYSE, and soared to more than $60.  Nacchio and key deputies became multimillionaires.  Qwest's fall came quickly as investigations began over questionable deals to boost revenue.  By 2002, Nacchio was out of a job.  A federal grand jury indicted him in 2005.

TAKING SIDES

Keep it simple. Prosecutors may show the jury a timeline comparing what Nacchio knew, when he knew it and when he sold the stock.

Some challenges

Some of Nacchio's stock sales were on a prearranged schedule.  Prosecutors have given immunity deals to some potential witnesses.  Prosecutors won four guilty pleas against other Qwest executives, but none served jail time.  Some potential witnesses also sold stock during the insider-trading period but weren't prosecuted.

Potential witnesses

  Former Chief Financial Officer Robin Szeliga, who pleaded guilty to insider trading:  Szeliga said in her plea agreement that she and other unidentified "senior Qwest executives" knew by at least April 24, 2001, that various business divisions weren't meeting revenue targets and that management decided against telling investors the company was relying on "gap fillers," such as questionable one-time sales and swaps of network capacity.

  Former Chief Operating Officer Afshin Mohebbi:  Indicated in a Jan. 2, 2001, e-mail to Szeliga he had warned Nacchio about the revenue targets being a stretch.

  Former investor relations director Lee Wolfe:  Documents indicate investors and analysts were asking Qwest to disclose more about how it was generating its double-digit revenue growth.

  Former top sales executive Gregory Casey:  Settled civil-fraud allegations that some contracts were backdated and that Qwest booked additional revenue by doing capacity swaps it didn't need.

  Director Peter Hellman:  Told a congressional committee that Qwest's audit committee told management to provide more disclosure to investors about one-time sales and swaps of communications capacity.  (Former audit committee chairman Tom Stephens could testify about this instead.)

  Other witnesses:  May include several other former executives, likely some of whom already have settled civil fraud allegations or pleaded guilty to crimes.  Former chief legal counsel Drake Tempest and former Chief Financial Officer Robert Woodruff also are possible witnesses.  A couple of "victims" of Qwest's stock collapse are expected to testify.

DEFENSE

Strategy

Create reasonable doubt:  National security defense may be used to create fog in jurors' minds about Nacchio's state of mind about the business.  Defense argues Nacchio was optimistic about Qwest's financial condition.  Other defenses could include that Nacchio was advised to diversify his stock holdings, that he didn't possess "material" information required to be disclosed to investors, and that he acted in good faith.

In a nutshell

The defense argues Nacchio reasonably believed Qwest was in line to receive hundreds of millions of dollars of lucrative federal contracts, more than enough to offset the weakness in the business he was being warned about.  The defense argues the executives warning him about the weakening business weren't aware of those potential classified contracts.

Another witness

  James Payne, then head of Qwest's federal government business, whose testimony could cut both ways:  In a November 2005 interview with prosecutors, Payne described the speculative nature of many of the contracts and being cautious about what he would include in his revenue forecast.  One potential contract, code-named "Ferrari," popped up from time to time, but Qwest didn't win the contract until several years later, he said.

Intriguing meeting

The defense may argue Nacchio had direct contact with top government officials such as Condoleezza Rice and former counterterrorism adviser Richard Clarke, through a national security telecommunications advisory panel.  Payne described a March 2001 meeting in the White House situation room attended by 15 to 20 people.  Clarke asked another executive if it would be possible to create a private network for the government.  Nacchio declared it was not only possible, but he had already created private networks.  Others argued it would be too expensive.  Donna Jaegers, an analyst for Janco Partners in Greenwood Village, said last spring that Nacchio sometime around 2001 seemed "ga-ga" over the possibility of providing private Internet network services to the government.

  Location:  The federal courthouse is at Champa and 19th streets in downtown Denver.  The doors are expected to open between 6:30 and 7 a.m., with the courtrooms opening about 8 a.m.

  Jury selection:  Monday's jury selection, which starts at 8:30 a.m., will be in Courtroom A201, which seats about 110 spectators.  Several dozen of those seats will be used by the prospective jurors.

  The courtroom:  When the trial begins, it will be held in Courtroom A1001, Judge Edward Nottingham's courtroom, starting each day at a time that he determines.  That courtroom seats about 30 public spectators.

  The overflow room:  There will be an "overflow room," Courtroom A702, with a video feed from the courtrooms.  The room seats about 65.

  A few rules:  Everyone entering the courthouse must show photo ID and pass through a metal detector.  Only credentialed media may have laptops in the primary courtrooms.  Photographing, video or audio recording, or transmission of court proceedings is prohibited.  For Judge Nottingham's rules of conduct, go to www.co.uscourts.gov/judges/rord.pdf.

  Thomas Hall, a former senior vice president of sales, one year of probation after pleading guilty to a misdemeanor count of falsifying a document in connection with a deal to equip Arizona schools with the Internet.

  Marc Weisberg, a former executive vice president, received two years of probation, 60 days of house arrest after pleading guilty to one felony count of wire fraud in connection with allegations that he made vendors "pay to play."

  Robin Szeliga, a former chief financial officer, received two years of probation, six months of house arrest after pleading guilty to one felony count of insider trading.

  Grant Graham, former senior vice president of finance.  Pleaded guilty to one felony count of accessory after the fact to wire fraud in connection with the Arizona schools deal.  Graham was given credit for his cooperation and being under court supervision for 2 years.

Still facing SEC civil-fraud charges:

  James Kozlowski, former accountant

  Afshin Mohebbi, former chief operating officer

  Joe Nacchio, former CEO

  Frank Noyes, former accountant

  Robert Woodruff, former chief financial officer

That's settled

SEC civil-charge settlements:


  Gregory Casey, former top sales executive

  Augie Cruciotti, former executive vice president

  William Eveleth, former senior vice president of financial planning

  Loren Pfau, former sales manager

  Michael Felicissimo, former Qwest Wireless finance chief

  Steve Haggerty, former senior vice president

  Roger Hoaglund, former senior vice president

  Robin Szeliga, former chief financial officer (tentative)

http://www.rockymountainnews.com/drmn/tech/article/0,2777,DRMN_23910_5424461,00.html