Mohebbi recalls warning Nacchio
REVENUE GOALS TOO HIGH
By Andy Vuong, Staff Writer
Tuesday, April 3, 2007
Former Qwest president Afshin Mohebbi provided the government on
Monday with perhaps its strongest testimony yet in its criminal
insider-trading case against former Qwest chief executive Joe
The message from the soft-spoken Mohebbi was loud and clear
during a methodical direct examination by lead prosecutor Cliff
Stricklin: Mohebbi repeatedly warned Nacchio the company would
have a tough time hitting financial targets for 2001.
Unlike concerns raised by other former executives who previously
testified during the 3-week-old trial, Mohebbi's warnings were
written in memos given to Nacchio and introduced as evidence in
That allowed jurors not only to hear Mohebbi's recollections but
also to read exactly what he told Nacchio. In a late 2000 memo,
he wrote that Qwest's financial targets for 2001 were a "huge
stretch" and its dependence on one-time network capacity sales
to fill revenue shortfalls could be too large to deal with if
the company's recurring business didn't take off.
"If we don't crank up recurring growth by April, we got big
problems," he wrote in a different memo in December 2000. That
growth never happened, Mohebbi testified.
"He was effective in getting the government's story across,
mostly because of all the memos that he wrote," said University
of Denver law professor Jay Brown, who is working as a legal
analyst for The Denver Post.
Mohebbi testified that he usually typed out the memos and placed
them on Nacchio's chair rather than send them through e-mail
because Nacchio wasn't an e-mail type of person. Mohebbi, who
began his testimony Thursday, said he would later discuss the
memos with Nacchio.
During cross-examination Monday, lead defense attorney Herbert
Stern tried to show the jury that Mohebbi was just as upbeat as
Nacchio was in February 2000 about the combined Qwest/US West.
The two companies merged in June 2000. But much of that wasn't
allowed by U.S. District Judge Edward Nottingham after
objections from the prosecution about its relevance to the case.
Stern got Mohebbi to acknowledge that he had met with the
government more than a dozen times since 2005, including at
least six times this year, in preparation for the trial.
"That's a good indication of the importance of this witness to
the government's case," analyst Brown said.
Mohebbi was Nacchio's No. 2 man at Qwest and is the
highest-ranking former executive to have testified.
During direct examination, Stricklin walked Mohebbi
chronologically through his dealings with Nacchio from the time
he joined Qwest in mid-1999 to April 2001.
Mohebbi testified that when business unit heads told Nacchio in
October 2000 that there was a gap between their 2001 targets and
the publicly stated guidance, Nacchio's response was "to
continue to close the gap."
Mohebbi recounted a tense meeting in November 2000 in which
former Qwest national mass markets head Betsy Bernard again said
her unit couldn't hit its numbers.
"I just don't understand why you can't close the gap," former
global business head Stephen Jacobsen, whose unit was able to
fill its gap, told Bernard, Mohebbi testified.
Jacobsen took the financial documents that were presented and
"threw it toward" Bernard, according to Mohebbi, who said
Nacchio made Jacobsen apologize to Bernard.
Jacobsen is listed as a potential defense witness. Bernard is
listed as a government witness but has yet to testify.
Mohebbi testified that giving Nacchio a different view could
sometimes lead to "heated" debates. He didn't go into
specifics, except to say that when he raised the issue of Qwest
needing to increase its "visibility" in terms of revenue
disclosure in 2001, Nacchio responded by saying, "It's not your
Mohebbi has been granted immunity from criminal prosecution. He
testified that he had $8 million worth of vested stock options
in January 2001 but never exercised them.
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 through its
hostile takeover of US West before it nearly crashed into
bankruptcy amid the tech downturn and news of accounting
irregularities at Qwest.
Staff writer Andy Vuong can be reached at 303-954-1209 or
What's up today
Defense attorney Herbert Stern continues his cross-examination
of former Qwest president Afshin Mohebbi.
What's to come
Document custodian Margaret Martinez may take the stand. Several
names remain on the witness list, including analysts Drake
Johnstone and Prashant Khemka.
Highlights: Key points of Afshin Mohebbi's six hours of
testimony Thursday and Monday. 5C
Inside Qwest's market projections
Former Qwest president Afshin Mohebbi testified under direct
examination from prosecutors for six hours Thursday and Monday
in the insider-trading trial of former Qwest CEO Joe Nacchio.
Cross-examination began late in the afternoon Monday and will
continue this morning. Some highlights of his testimony:
Mohebbi warned Nacchio repeatedly, in writing, in late 2000 and
early 2001 about the growing gap between Qwest's financial
targets and the revenue projections coming from its
business-unit heads. Mohebbi told Nacchio that revenues from
predictable sources such as phone services would have to be
strong right out of the gate to make the 2001 numbers. But as
the first quarter of 2001 progressed, he said, that didn't
happen. Nacchio responded that the unit heads should meet and
hash it out. They could horse trade, but they had to make the
numbers. Still, Mohebbi said, the gap did not close. In an
internal update on April 9, 2001, as the company approached its
first-quarter earnings announcement, executives said the gap had
grown to $329 million, or 30 percent higher than planned. "The
shift (to recurring revenues) is not occurring," they said.
Two documents filed with the Securities and Exchange Commission
by Qwest in 2001 mischaracterized what Mohebbi said about
Qwest's financial guidance, he testified. The documents stated
he told analysts he was comfortable with the guidance, which
Mohebbi denied he said. The government may have been trying to
head off a confrontation between Mohebbi and Nacchio's attorneys
over these purported statements.
Mohebbi said he left memos on Nacchio's chair to make sure he
saw them. If Nacchio was in New Jersey, he faxed them and had
them delivered. Prosecutors showed a FedEx receipt for documents
sent to Nacchio on Dec. 20, 2000. In his opening remarks,
Nacchio attorney Herbert Stern said Nacchio didn't see Mohebbi's
Dec. 20 memo because he was "distributing food in hovels to
underprivileged people" in Appalachia.
Stern objected repeatedly during prosecutor Cliff Stricklin's
questioning of Mohebbi. Judge Edward Nottingham overruled Stern
many times but granted his objections at least four times,
forcing Stricklin to abandon his line of questioning. Those
included questioning about why Nacchio did not like to use
e-mail, how former chief financial officer Robin Szeliga was
chosen for the job in April 2001, whether Nacchio misled Mohebbi
about the pricing of stock options Mohebbi received, and why
Mohebbi never sold his Qwest shares in 2001.