objected to higher targets
DISSENSION AMONG THE RANKS
By Andy Vuong, Staff Writer
Wednesday, March 28, 2007
In the fall of 2000, the heads of Qwest's various business units
met with then-chief executive Joe Nacchio on the 52nd floor of
the company's Denver headquarters.
They committed to lofty revenue targets for 2001, a former
executive testified Tuesday.
"I called it 'the sign-in-blood meeting,"' testified Gregory
Casey, the former head of Qwest's wholesale-markets division.
Casey said he warned Nacchio at the meeting that his unit would
have a hard time reaching its revenue target.
"I let him know that it was a stretch to hit this $4.8 billion
number," Casey testified in Nacchio's criminal insider-trading
Despite the warning, the wholesale division's 2001 target was
raised weeks later by $172 million. In its case against Nacchio,
the government is trying to show that Nacchio repeatedly told
analysts and investors publicly that Qwest was healthy while he
knew internally that the company was struggling.
Nacchio's attorneys have said he firmly believed the company was
financially sound and that he didn't want to exercise and sell
all of his stock options, some of which are the focus of this
case. They also have said his guidance to analysts and investors
was subject to the warning statements that are included in the
company's regulatory filings.
Casey responded to his targets getting raised by sending an
e-mail to Qwest finance official David Bromberg that read:
"Dear Mr. Bromberg:
Sincerely, Greg Casey."
Nacchio and other executives received copies of the e-mail.
The prosecution did not ask Casey about Nacchio's response, if
any. Anthony Accetta, a former federal prosecutor working as an
analyst for The Post, said the government erred by not digging
Casey acknowledged at the end of his direct testimony that he
received immunity from the Justice Department in exchange for
his testimony. He also previously paid $2.1 million, without
admitting or denying guilt, to settle a suit brought by the
Securities and Exchange Commission accusing him and other former
Qwest executives of inflating the company's financial
Casey's credibility was questioned when an audio tape of him
giving a presentation to analysts was played shortly after he
said he couldn't recall whether he spoke with analysts during a
so-called "dog-and- pony" show in October 2000.
He told analysts that purchases of capacity on Qwest's network,
which included one-time sales to other carriers, were "growing
larger and larger."
Earlier, under direct examination by the prosecution, he said
such sales were beginning to dry up around that time.
Casey also spoke of how Qwest used swaps of fiber-optic capacity
-- in which Qwest typically purchased international capacity in
exchange for domestic capacity -- to help hit its revenue
targets in the first two quarters of 2001.
Qwest later restated $2.5 billion in revenue booked from 2000
through 2002 for what it called improper accounting. Of that,
$1.5 billion came from such swaps. But the jurors haven't heard
Before Casey took the stand, federal prosecutor Colleen Conry
tried to bring the restatement into the case during her
questioning of former Qwest chief financial officer Robin
Szeliga, but U.S. District Judge Edward Nottingham wouldn't
The swaps raised questions from regulators about Qwest's
accounting because the company booked the revenue upfront
instead of stretching it over the length of the deals, typically
20 years. Some also viewed swaps as sham deals that served no
legitimate purpose other than to boost revenue for the companies
Casey, who joined Qwest in 1997 and left at the end of 2001,
testified under cross-examination that he didn't think there was
anything wrong with the swaps.
In 2002, in testimony before Congress, Nacchio said Qwest
believed it could book capacity swaps as current revenue under
certain conditions, based on an opinion from its outside
Nacchio joined Qwest in 1997 and was ousted by the board of
directors in June 2002. He built Qwest into one of the
country's largest telecommunications companies before it crashed
nearly into bankruptcy amid the tech downturn and news of
accounting irregularities at Qwest.
Conry said Tuesday the government would try to wrap up its case
by the end of next week. Nottingham pushed her to complete the
case by early next week.
QUOTES OF NOTE
"Hey, it wouldn't look real good if you were selling stock right
now. We don't want all the officers selling stock right after
Joe Nacchio, to Qwest sales executive Gregory Casey, shortly
after Qwest and US West merged in 2000, according to Casey's
"I told Joe it was too late. I'd already sold it."
Reply from Casey, who said he cashed in $25 million in stock
"I'm under a little bit of a disability. Will your honor allow
a little leeway here?"
Nacchio attorney Herbert Stern, seeking to question Robin
Szeliga about top-secret government contracts amid the
constraints of previous rulings.
"What do you want, a rope to hang yourself?"
U.S. District Judge Edward Nottingham
"Somehow, that's not what I had in mind."
"At some point in time, you're going to have to stop using
accounting tricks to make your numbers."
Nacchio, speaking to Casey, according to testimony from
Casey, who did not cite a specific time frame.
"In addition, defendant is also wrong in asserting that Ms.
Anderson was not an actual victim."
Part of the prosecution's reply to a defense motion for a
mistrial. Former Qwest employee Sally Anderson had previously
testified that she invested nearly all her savings in Qwest
stock after Nacchio sent out optimistic revenue projections in
2000. The defense claims that Anderson's losses can't be tied
to Nacchio's allegedly illegal insider trading.