Government struggles to make case
WHERE IS THE EVIDENCE?
By Greg Griffin, Staff Writer
Sunday, April 1, 2007
Two weeks into the insider-trading case against Joe Nacchio, the
government has not introduced strong evidence that the former
Qwest chief executive willfully broke the law, experts say.
Without that, prospects for conviction may be weak.
That sets up a tall order for prosecutors as they enter the
third and possibly final week of their case.
"They need words coming out of Nacchio's mouth (from a witness)
that can show he wanted to sell because he knew there were
problems at the company," said law professor and
white-collar-crime expert Peter Henning of Wayne State
University in Detroit. "They've got to have some testimony
about what he was saying in order to show his motive to trade."
The prosecution's narrow case of criminal insider trading has
also blocked introduction of key evidence. And time is running
out. "Bringing a case with simplicity for the jury is
understandable, but so far it has not proven to be simple," said
University of Denver law professor and securities expert Jay
Brown, who is attending the trial as a consultant to The Denver
Post. "What are you really gaining by cutting out things that
are complicated, but are limiting in your ability to introduce
During eight days of trial, the government has established that
other Qwest executives told Nacchio they thought the company
would miss its 2001 earnings targets.
But it has produced little to demonstrate Nacchio's frame of
mind when he sold $100.8 million in Qwest stock between January
and May 2001.
That's required, either with direct or circumstantial evidence,
to prove criminal insider trading.
Many observers had expected former Qwest chief financial officer
Robin Szeliga to deliver at least some portion of that evidence
on the stand. Her testimony, however, fell short of providing
that kind of detail.
On Thursday, Nacchio attorney Herbert Stern appeared to make
more headway than prosecutors in establishing Nacchio's state of
mind regarding his stock sales.
During cross-examination by Stern, Nacchio financial adviser
David Weinstein, a government witness, said he had urged Nacchio
to sell more Qwest stock options in 2000 and 2001 to diversify
But Nacchio resisted, saying he wanted to wait for the stock
price to rise, Weinstein said.
Former Qwest president Afshin Mohebbi took the stand after
Weinstein and will resume his testimony Monday morning under
questioning from lead prosecutor Cliff Stricklin.
No other Qwest executive worked more closely with Nacchio. Yet,
in his grand-jury testimony, a portion of which was filed in the
case, Mohebbi said, "I don't know what was in his mind."
Mohebbi said he told Nacchio more than once that he was
uncomfortable with Qwest's earnings targets.
"I can't go that extra step to say what -- how he linked what I
gave him from what he said," Mohebbi told the grand jury. "But
I can tell you what he told me, which is 'I heard you. I don't
agree with it. ... We're not changing the numbers."'
The difficulty establishing Nacchio's intent is just one hurdle
facing the government. Its case suffered a series of setbacks
last week, including several rulings by U.S. District Judge
Edward Nottingham limiting their evidence.
On Tuesday, Nottingham barred prosecutors from mentioning
Qwest's restatement of $2.5 billion in revenue and earnings for
the years 2000 through 2002.
The government tried to mention the restatement to counter
defense attorney Stern's contention that the Denver-based phone
company achieved its earnings targets in 2000 and for the first
two quarters of 2001.
"I'm a little torn, because, frankly, I think that to say that
Qwest made the numbers is a little bit misleading," Nottingham
told attorneys during a bench conference, according to a
"But ... if we get into these accounting issues and how they
were making the numbers and that kind of issue, we are going to
be here a long time."
Stern then reminded the government that Assistant U.S. Attorney
James Hearty told jurors in opening statements that the case
isn't about accounting but about fairness. Nottingham said the
government could rebut Stern's comments regarding Qwest's making
its numbers by reminding jurors that it did so only by relying
on undisclosed sales of network capacity.
"That handicaps the government's case," said Wayne State's
Henning. "The judge is being very careful about what he lets in
that's outside the 2001 time frame."
A key government witness this week could be former Qwest board
member Tom Stephens, who was chairman of the audit committee.
He reportedly told Nacchio to tighten Qwest's financial
practices and disclose more information to investors.
Stephens also identified problems in a swap of fiber-optic
capacity between Qwest and Global Crossing. "This one stinks,"
he wrote in a note in April 2001 that became part of the public
record during congressional hearings.
The strength of the government's case, so far, is the consistent
testimony from former Qwest executives painting a picture of
Nacchio's overaggressive financial targets in late 2000 and
But the government has had difficulty introducing evidence
related to a stock order it says Nacchio improperly backdated in
It also was barred by Nottingham from bringing up its allegation
that Nacchio transferred $90 million into his wife's name in
2002, which prosecutors said showed he was trying to hide his
Nacchio's attorneys have had some success challenging the
government's witnesses and eliciting testimony that may raise
reasonable doubt among the jurors.
"It doesn't seem to me the prosecution has made its case yet,"
said Denver defense attorney Jeralyn Merritt, who has attended
much of the trial. "The point of the whole trial is to show
what his intent was in selling this stock."
Staff writer Tom McGhee contributed to this report.
Staff writer Greg Griffin can be reached at 303-954-1241 or