Buying on Nacchio's say-so
Ex-Qwest employee Anderson testifies she purchased shares based
on CEO's e-mail
By Sara Burnett
Rocky Mountain News
Friday, March 23, 2007
Sally Anderson was excited about the e-mail she received from
Qwest CEO Joe Nacchio on Sept. 7, 2000. In it, Nacchio shared
some good news: Qwest, newly merged with U S West, was raising
revenue projections for 2000 and 2001. It was hiring someone to
ensure a better customer experience, cutting costs and launching
exciting new products, such as digital media.
Anderson, a regional training manager with 28 years' experience
at Qwest, U S West and Northwestern Bell, had been putting money
into a company savings plan every two weeks for years. Half of
it she put into company stock.
But Nacchio's enthusiasm that day was so contagious, Anderson
promptly began putting 100 percent into Qwest, the former
employee told jurors during Nacchio's insider-trading trial
"I wanted my savings to grow with the company," Anderson said.
Judge Edward Nottingham forbade prosecutors from questioning
Anderson about whether she lost money and if so, how much.
Their questioning was limited to the idea that Nacchio's
statements -- and his omissions of any "insider" information he
might have had about trouble brewing at Qwest -- led people like
Anderson to buy stock.
But under cross-examination, Anderson said she was among a group
of people contacted about testifying and that the government had
been looking for people who "lost a lot of money in Qwest stock"
-- a comment that was clearly audible to jurors before defense
attorney Marci Gilligan cut her off.
Later, outside the courthouse, Anderson would say only that she
had lost "a lot" of money.
"Let's hope we get some kind of justice," she said.
Prosecutors have argued that the case against Nacchio, who faces
42 counts of insider trading, is an issue of fairness. The CEO
grossed nearly $101 million by selling stock between January and
May 2001 -- when he knew the company would have trouble meeting
targets, prosecutors allege -- while at the same time painting a
rosy picture for investors like Anderson.
But defense attorneys argue that all investments come with risks
and that the company warned investors the market was
unpredictable and there were no guarantees. They also say
Nacchio believed what he said in that e-mail and in other
statements just like it.
Also Thursday, former Qwest board member Craig Slater testified
that the board of directors did not force Nacchio to sell shares
in early 2001.
Defense attorney Herbert Stern said during opening statements
this week that the board directed Nacchio, "Joe, go sell."
Nacchio had wanted an extension on stock options that were
scheduled to expire in mid-2003, but the board refused.
Slater conceded the board would not extend the options. But he
said board members wanted Nacchio to enter into a sales plan
that would have spread his sales in a regular and automatic
pattern over the next approximately two years, rather than
selling large chunks at his own discretion.
"We did not require," Slater said. "We did not demand. . . . We
did not force."
Thursday morning, Lee Wolfe, the former director of investor
relations, testified that several people in addition to Nacchio
-- including Qwest lawyers and its outside auditors -- were
involved in deciding whether to disclose information to Wall
Street. Wolfe earlier in the week said he urged Nacchio to tell
investors that a large part of anticipated revenues were coming
from large, one-time sales of space on Qwest's network -- sales
Wolfe considered unstable.
Asked by defense attorney John Richilano how the CEO responded,
Wolfe said Nacchio asked why investors needed to know. When
Wolfe told him it was to make an informed decision on whether to
buy stock, he said Nacchio replied: "Screw 'em. Go tell them
THE DAY'S HIGHLIGHTS
• Former Qwest/U S West employee Sally Anderson
testified that she boosted her retirement savings allocation in
Qwest stock from 50 percent to 100 percent based on a September
2000 e-mail to employees from Nacchio.
• Craig Slater testified the Qwest board never required
or forced Nacchio to sell his stock. He confirmed Nacchio asked
the board if he could extend the June 2003 expiration date of
his first batch of stock options but estimates the company would
have had to take an accounting charge of several hundred
millions of dollars against earnings. Slater also confirms
Nacchio considered quitting in early 2001 when one of his sons
was going through emotional issues.
• Nacchio attorney John Richilano provides a tease of
the possible "secret (government) contracts" defense as he
finishes cross-examining former Qwest investor relations
executive Lee Wolfe.
• Court will not be in session today. The trial resumes
WHAT THEY'RE SAYING
Basically his response was, 'Screw 'em. Go tell them to buy.' "
Lee Wolfe, former Qwest executive for investor relations,
testifying that Joe Nacchio refused to release detailed
financial data to shareholders and analysts
• Members of Boy Scout Troop 345 from Greenwood Village
were among the spectators attending the trial Thursday.
About 10 Scouts sat in the overflow room to watch the trial on
video monitors for about a half-hour. Earlier, they had met
with federal Judge Robert Blackburn in a separate courtroom and
conducted a mock trial.
Scoutmaster Steve Leonhardt said the Scouts were earning their
"Citizenship in the Nation" badge, which requires them to visit
a federal facility.
"The case was really interesting," said Scout Adam Gardner,
referring to the mock trial. But he said watching the Nacchio
trial was interesting as well.
burnetts@RockyMountainNews.com or 303-954-5314. Staff writer
Jeff Smith contributed to this report.