raised red flag often, ex-CFO Szeliga testifies
Year passed before Nacchio lowered revenue outlook
By Sara Burnett
Rocky Mountain News
Tuesday, March 27, 2007
Former Qwest Chief Financial Officer Robin Szeliga warned Joe
Nacchio repeatedly in late 2000 and early 2001 that the company
would have trouble meeting its 2001 revenue projections, Szeliga
testified at the CEO's insider-trading trial Monday. The
warnings started in September 2000 and included "a lengthy
argument" that lasted until almost 3 a.m. one day in June 2001,
But it wasn't until Sept. 10, 2001 -- more than a year after
Szeliga first raised a red flag -- that Nacchio lowered the
guidance to Wall Street, from the earlier range of $21.3 to
$21.7 billion to a new target of $20.5 billion.
In the meantime, prosecutors say, Nacchio was selling his stock
at a pace faster than ever before, grossing nearly $101 million
between January and May 2001.
Nacchio believed the company could meet its aggressive targets,
defense attorney Herbert Stern said, noting that under Nacchio
the company met projections for 17 consecutive quarters --
including the first two quarters of 2001.
Szeliga testified for more than five hours Monday under a plea
deal with prosecutors and is expected to resume her testimony
Szeliga said Qwest's revenues weren't sustainable and that in
meeting after meeting, department heads showed Nacchio their
numbers and told him as much. Among the problems, she said, was
an over-reliance on large, one-time sales of space on Qwest's
"The plan was very risky," Szeliga said.
She admitted that during an earnings call with analysts
following the close of the first quarter she "omitted important
information" about the one-time sales.
Prior to that call, she testified, Nacchio told her, "Stick to
the script; I'll answer the questions."
Their late-night argument came two months later as they prepared
to address investors regarding a Wall Street Journal
article that had caused Qwest and other telco stocks to drop.
Szeliga, who was visiting her parents in Pennsylvania, said she
urged Nacchio via telephone not to restate second-quarter or
year-end 2001 targets because she wasn't comfortable with them.
As the time on the East Coast approached 3 a.m., she said,
Nacchio told her, "Just hang up and get some sleep. You'll see
what I decide in the morning."
Later that day, Nacchio again confirmed the targets.
Szeliga pleaded guilty in July 2005 to one count of insider
trading, for selling 10,000 shares in April 2001. She used the
$125,000 profit to remodel her house, she testified.
Insider trading carries a maximum punishment of 10 years in
prison, plus a $1 million fine and restitution. But under
Szeliga's plea deal -- in which she agreed to cooperate with the
government -- she was sentenced to six months of house arrest
and two years of probation. She also was ordered to pay a fine
of $250,000 and pay back the $125,000 stock profit.
Stern grilled Szeliga on the deal, saying she must have been
"very concerned" about what could happen to her and asking
whether she had been "interested in" testifying against Nacchio.
"I was only interested in avoiding incarceration by telling the
truth and getting this behind me," Szeliga replied. "Not
interested in becoming a witness in this trial."
The day's highlights
• Robin Szeliga, Qwest's former chief financial
officer, spent more than five hours on the witness stand
Monday. Szeliga testified that she pleaded guilty to one felony
count of insider trading in connection with a stock sale (on
April 30, 2001) because she possessed nonpublic, material
• Szeliga said she omitted "some important
information" during the first-quarter 2001 earnings call with
analysts and investors. "The comments I made were truthful, I
omitted some important information," Szeliga said. "I omitted
to tell the investing public we were making the quarter with
IRUs (one-time sales and swaps of network capacity) and the
amount of those IRUs."
• Szeliga said Joe Nacchio told managers of
Qwest's key business units to focus on meeting business targets,
even as those managers told Nacchio they could not achieve those
• Prosecutors played a video clip from a January
2001 all-employee meeting, in which Nacchio said: "The most
important thing we do is meet our numbers. It's more important
than any individual product, it's more important than any
individual philosophy, it's more important than any individual
cultural change we're making. We stop everything else when we
don't make the numbers."
• In June 2001, Szeliga argued with Nacchio until
the middle of the night against reaffirming financial targets.
She was unsuccessful; he confirmed the targets the next day.
Nacchio didn't lower financial targets until Sept. 10, 2001.
What they're saying
"But, irrespective of his motives, his poor management of one of
Denver's largest employers destroyed lives. . . . Joe Nacchio is
guilty, all right. Guilty of being a moron." Tim Beyers, of
Littleton, who blogs for The Motley Fool finance Web site
• The defense will continue its cross-examination
this morning of former Qwest Chief Financial Officer Robin
Szeliga. She will be followed by the next prosecution witness.
burnetts@RockyMountainNews.com or 303-954-5314