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Nacchio just missed great excuse 
By Al Lewis, Staff Columnist
Denver Post
Sunday, March 25, 2007

Joe Nacchio missed the excuse jackpot by one day.

On Sept. 10, 2001, the former Qwest CEO finally lowered his revenue projections for the phone company.  Nacchio announced plans to cut 4,000 jobs, about 6 percent of Qwest's workforce, because the company suddenly expected to earn $500 million less than Nacchio had said it would for the year.

If Nacchio had waited one more day, he could have blamed the terrorists.

Throngs of Wall Street analysts and investors rising against Nacchio's overzealous projections would have been more easily quelled.  Nacchio could have said he missed his numbers not because they were insanely optimistic but because 9/11 was an unpredictable event.

If there were ever a last chance to divert attention away from Qwest's $2.5 billion in overstated revenue and Nacchio's massive stock sales, this was it.  It was the excuse jackpot.  Nacchio missed it by a day.  Qwest's board fired Nacchio in June 2002 as the company's stock slouched toward its historic low of 99 cents a share in intraday trading.  Thousands of employees and investors had lost fortunes.  The company was nearly bankrupt.  But Nacchio was hundreds of millions of dollars richer.

Now, he is on trial on 42 counts of illegal insider trading.  Prosecutors accuse him of lying about Qwest's prospects and fudging its books as he dumped his stock.

Nacchio's lawyer, Herbert Stern, reminded me of Nacchio's unlucky timing during opening arguments last week.

"You know what date he took it down, folks?"  Stern said of Nacchio's projections.  "You're going to be amazed.  He took it down on September 10 of 2001. ... You know what happened the next day?  Of course you do. 9/11.  Planes crashing into buildings, monsters killing our colleagues, stock market closed for seven days.  And when it reopened, Qwest stock went up.  Go figure."

Eventually, the weight of Qwest's accounting issues may have crushed Nacchio anyway.  But backing off his projections after 9/11 would have given him more time and more cover.

Now, prosecutors are portraying Nacchio as a renegade CEO who made reckless, if not fraudulent, promises to Wall Street to prop up Qwest stock as he sold it.  And some significant cracks are emerging in portions of Nacchio's defense.

Stern argues that every bold pronouncement Nacchio made was accompanied with a warning about "forward-looking statements."  Investors often overlook this boilerplate language, which essentially warns that any prediction one makes about the future may not prove true.  They also overlook "risk factors" enumerated in regulatory filings.

This language is designed to protect companies from civil litigation.  It's not clear whether it can protect a CEO against criminal allegations.

"It's like the fine print on a parking-lot stub," said Anthony Accetta, a former federal prosecutor observing the Nacchio trial for The Denver Post.  "It's not really going to protect the parking-lot owners if they do something stupid."

Stern also deployed the "use it or lose it" defense.  He said Nacchio cashed his options because they were about to expire.  "He had to get rid of those options," Stern said.  "Would you expect him just to say, 'I'm not going to exercise them?"'

Prosecutors have countered with testimony from Craig Slater, a former Qwest board member.  Slater told the court that Nacchio could have exercised and held his stock.  This may have involved selling some stock to pay taxes and the strike price of his shares, but holding the remaining stock would have demonstrated Nacchio's confidence in the company.  Also, options that are about to expire don't come with a license to trade them when rules prohibit otherwise.

Too bad Nacchio missed Sept. 11 by one day.  We might be more inclined to view him as a great CEO whose unbridled optimism was curbed only by terrorists.  This, however, hasn't prevented Stern from making the argument.

"Bad things happened to the economy," Stern said.  "Bad things happened to companies.  And people do get upset about that.  Sometimes there is a feeling that somebody has got to pay.  And the investigations start, and the drums start banging. ... He didn't do it.  He shouldn't be prosecuted."

Al Lewis' column appears Sundays, Tuesdays and Fridays. Respond to him at denverpostbloghouse.com/


lewis, 303-954-1967 or alewis@denverpost.com.

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