Stricklin begins rebuttal
By Tom McGhee, Staff Writer
Wednesday, April 11, 2007
Article Last Updated: 04/11/2007 02:58:28 PM MDT
chief executive of Qwest Communications, Joe Nacchio, center,
his wife Anne, left, and son Michael, right, arrive at the
federal courthouse in Denver Wednesday, April 11, 2007. (Ed
Andrieski | AP)
Defense attorney Herbert Stern has concluded his nearly five
hour closing argument in the insider trading case of former
Qwest CEO Joe Nacchio. Lead prosecutor Cliff Stricklin has
started delivering the government's rebuttal.
Stricklin began his rebuttal by telling jurors that, over the
past four weeks, they've been taken behind the scenes at Qwest.
"You've learned Joe Nacchio actually used the information -- the
information that he knew by virtue of an inside position -- to
sell Qwest stock, to take his chips off the table while risks
abounded," Stricklin said.
During his closing argument, Stern told jurors that Qwest
employees who testified for the prosecution did so to avoid
jail, the numbers that Nacchio gave Wall Street were
set by investment bankers, and that the former Qwest CEO had no
personal interest in the price of the company's stock when he
held a press conference. Stern also called former Qwest
investor relations director Lee Wolfe a liar, and said that
prosecutors forced others to take the stand to avoid legal
Wolfe lied when he said Nacchio was warned on the night before a
$31 million study was released that projections for a combined
Qwest/US West were too aggressive, Stern said.
Wolfe, who testified in the early days of this four-week trial,
said in working with Nacchio he learned that the best way to get
Nacchio to listen to him was to get "someone from the investment
community to tell him the same thing," Stern said.
Wolfe thought the projections in the report, later used to
develop revenue and earnings targets for the company, were too
aggressive. So he brought in brokers from Lehman Brothers and
Donaldson, Lufkin & Jenrette, the two firms that did the report,
to tell Nacchio the same thing.
They met on the night before the report was released, and the
brokers told Nacchio the numbers were too high, Stern said.
The report was too important for such a last-minute meeting to
take place, Stern said. "It was impossible that the night
before this report came out such a meeting would take place,"
Stern said. "You now know that Wolfe could not tell you the
Former Qwest CFO Robin Szeliga pleaded guilty to insider
trading, and other witnesses either pled guilty, or were granted
immunity for their testimony, Stern said. Szeliga used the
proceeds of her trade to upgrade her kitchen, he said.
Stern has made much of the report created by Lehman Brothers and
Donaldson, Lufkin & Jenrette in the days before Qwest merged
with regional Bell phone company US West in 2000. Nacchio based
guidance he gave to the investment community for 2000 and 2001
on numbers developed for that report, Stern said.
He raised revenue targets originally projected in the report for
2001, but only because Qwest exceeded projections for 2000 by
Nacchio could not have known that at the time he was setting the
new numbers the economy was on the verge of a crash that would
damage Qwest, Stern said.
The company hit targets in 17 consecutive quarters because
Nacchio gave his management team internal targets, called
"stretch budgets," that were higher than those given to Wall
Street, Stern said.
Within the company the word "stretch" came to mean the excess
included in the internal budgets, Stern said.
Coupled with those high targets were lucrative incentives in the
form of stock options that the executives received for hitting
the internal targets and exceeding guidance given to the
investment community, Stern said.
The government claims that Nacchio called a Dec. 21, 2000 press
conference in order to boost Qwest's stock price -- and the
amount he would receive in selling his -- which was declining
after two other telecommunications companies had made
announcements that hurt the entire telecommunications industry,
Former Qwest head of investor relations Lee Wolfe testified
earlier in the trial that Qwest's stock had gotten "hammered"
after the announcements, losing $10 per share almost
"The first sale he made was January 26, so what personal,
selfish, venal, corrupt interest was it that drove Nacchio to
hold a press conference on the 21st to assure the investment
community that whatever else was happening in the
telecommunications industry" Qwest was doing well, Stern said.
In his closing argument, Stern has also made sure jurors are
aware that the value of $25 million in stock that Nacchio was to
receive on Jan. 1, 2001 was set in 1999 by Qwest's board.
He was to receive stock worth that much whether shares were
trading at $1 per share or more on that day. That argument
suggests that Nacchio had no personal reason to worry about the
Stern frequently apologized to the jury for the glacial pace of
his closing argument, saying that he must be thorough because
Nacchio's future is imperiled by the charges of insider trading
for which he is on trial.