AUSWR
The Association of U S West Retirees
 

 

 

CEO trial edges to a close
By Sara Burnett and Jeff Smith
Rocky Mountain News
Saturday, April 7, 2007

Prosecutors this week rested their insider trading case against former Qwest CEO Joe Nacchio, after testimony by a parade of former executives and analysts.  On Thursday, the defense began calling witnesses and said it could wrap up its case Monday.

The big question now is whether Nacchio will take the stand.  The defense has been given until 5 p.m. today to make a decision.

So far, as expected, there's been no smoking gun.  Rather, prosecutors have tried to build a circumstantial case that Nacchio knew Qwest's finances were weakening at a time he was accelerating his stock sales.

The prosecution hasn't been allowed to introduce evidence that Qwest, under different management, later erased some of those revenues from its books.

The jury will have to decide whether the evidence shows beyond a reasonable doubt that Nacchio had a "willful intent to defraud" or, as one legal expert put it, "intentionally acted" on nonpublic, insider information.

The trial marks the culmination of a five-year federal investigation into Nacchio's era at the Denver telecommunications firm.  Three former executives -- Robin Szeliga, Grant Graham and Marc Weisberg -- have pleaded guilty to one felony count each, but no one has served jail time.

Several former executives received immunity from prosecution in exchange for their testimony at Nacchio's trial.

Even if Nacchio is acquitted of criminal insider-trading charges, his legal problems aren't over.  He still faces civil-fraud charges by the Securities and Exchange Commission, which is seeking $216 million in alleged "ill-gotten gains."

With the criminal trial close to a conclusion, the Rocky Mountain News takes a look at the case so far.

The charges

  Nacchio faces 42 counts of insider trading for selling stock between January and May 2001.  Prosecutors say he grossed $100.8 million while he had "insider" information that Qwest couldn't hit its aggressive revenue targets.  If convicted, he could be sentenced to up to 10 years in prison and a fine of up to $1 million per count.  Prosecutors also are requesting Nacchio forfeit stock sale profits from the period.

30  -  Number of trial days the case was expected to take

10  -  Number of days the prosecution spent presenting its case

19  -  Number of prosecution witnesses who took the stand

1  -   Number of days the defense has spent presenting its case

2  -   Number of defense witnesses who have taken the stand so far

What the jury heard: A sample of key testimony

FOR THE PROSECUTION

Lee Wolfe, former head of Qwest investor relations:  Got repeated questions from investors in 2000 and 2001 about how Qwest was making its numbers.  Said he sold shares in early 2001 but stopped because he thought it was wrong and had a "crisis of conscience."

Sally Anderson, former U S West and Qwest employee:  Increased her purchases of Qwest stock after receiving an e-mail from Nacchio in September 2000 that painted a rosy picture of the company's future.  Testified she lost money but didn't say how much.

Robin Szeliga, former Qwest chief financial officer:  Argued with Nacchio one night until close to 3 a.m. because she believed he was being too bullish about revenue projections and relying too much on one-time sales.  Pleaded guilty to one count of insider trading in connection with a stock sale in late April 2001.

Greg Casey, former head of Qwest's wholesale unit:  Was so outraged by revenue goals he thought were too high, he sent an e-mail to Nacchio and others that included just one word -- "bull---t."

Afshin Mohebbi, former Qwest president and chief operating officer:  Wrote several memos to Nacchio expressing concern that the company couldn't hit its targets.  In one, called the goals a "huge stretch."

Prashant Khemka, buy-side analyst at Goldman Sachs:  Wrote a pointed letter to Nacchio in July 2001 asking for details on how Qwest was making its numbers, stating "investors don't know how many cockroaches you still have in your bag."  Said his questions about Qwest's revenues had gone unanswered earlier in the year.

David Weinstein, Nacchio's former investment adviser:  Nacchio told him "constantly" in 2000 and 2001 that he didn't want to sell Qwest stock because he thought the price would go up.  Nacchio also asked him to do a "dishonest act" not explained to the jury.  (Discussions outside the presence of the jury indicate the issue had to do with Nacchio allegedly asking Weinstein for an invoice date to be changed so Qwest would pick up the tab.)

FOR THE DEFENSE

Qwest founder Phil Anschutz:  Nacchio came to him in January 2001, distraught because his son had attempted suicide.  Nacchio wanted to quit Qwest but later decided to stay.  Defense says the testimony shows Nacchio had an "out" and could have left if he knew trouble was brewing.

The Rev. Giles Hayes, abbot at St. Mary's Abbey in New Jersey:  Nacchio was with him in Appalachia giving out gifts and food to the poor when Mohebbi sent one of his memos warning about Qwest's aggressive financial targets.

What the jury didn't hear

  Information U.S. District Judge Edward Nottingham ruled cannot be shared with the jury:

Restatement:  In 2003, under the direction of new CEO Dick Notebaart, Qwest restated its earnings, wiping out $2.5 billion of revenue between 2000 and 2001.  Nottingham said the information was inadmissible because it occurred under different management and a different accounting firm after the time frame of the indictment.  Also, the government's indictment didn't allege Qwest's accounting was fraudulent, and Nottingham said "if we get into these accounting issues . . . we are going to be here a long time."

Moved assets:  Nacchio "hid" $90 million in assets in February 2002 by moving them into his wife's name, according to his former financial adviser.  Prosecutors said the move showed Nacchio had a guilty conscience;  Nottingham ruled Nacchio could have moved the assets for any number of reasons.

Lost savings:  Many retirees and investors such as Sally Anderson lost tens or even hundreds of thousands of dollars each when Qwest's stock price fell.  Anderson, a former employee, was allowed to testify she upped her purchases of Qwest stock after receiving an optimistic e-mail from Nacchio.  But Nottingham ruled this week he will strike her testimony and tell jurors to disregard it because it occurred prior to the time included in the indictment.

BellSouth buyback:  Qwest bought back 22 million shares of its own stock from BellSouth in 2001 for $1 billion.  Prosecutors showed Qwest borrowed the money to buy back the stock and that if BellSouth had sold the shares on the open market, Qwest's stock price would have dropped.  But Nottingham called the stock repurchase a "red herring" that would only confuse the jury.

CASE NOTES

Weighty evidence:  The case involves so much evidence -- from Securities and Exchange Commission filings to Qwest news releases and e-mails -- it had to be brought into the federal courthouse on dollies.  The documents fill at least 42 three-inch binders, plus dozens of bankers' boxes.

Family men:  Seated in the first row behind the defense each day have been Nacchio's wife, Anne Esker, and son Michael, along with a rotating group of friends and family.  But Nacchio's not the only one with a familial fan club.  Prosecutor James Hearty's wife has attended court at least twice, including to hear her husband deliver the government's opening statement.  And prosecutor Cliff Stricklin's wife and two young sons made an appearance this week, drawing admiring looks from at least two female jurors.

Tight reign:  Nottingham hasn't disappointed in providing his trademark sharp-tongued scoldings and occasional dry-humored observations.  Defense attorney Herbert Stern has taken much of the chastising, with Nottingham frequently barking at him to "move on" or "sit down."  But prosecutors have taken their licks, too, with the judge once accusing Justice Department litigator Colleen Conry of "thumbsucking."

Billable hours:  With five attorneys on each side and practically every witness having an attorney -- or two -- the courtroom has served as a "who's who" of Denver attorneys.  "I don't know what lawyers in Denver did before this case," one of those lawyers joked.

What's next

The defense could call one or two more witnesses -- not including Nacchio -- on Monday.

Once testimony is complete, the jury will hear closing arguments.  Because the prosecution has the burden of proof, it will present first, then get a chance to address the jury again after the defense has delivered its closing.  This could take a full day.  The jury then will receive instructions from Nottingham and return to the jury room to deliberate.

Sara Burnett and Jeff Smith, Rocky Mountain News

http://www.rockymountainnews.com/drmn/tech/article/0,2777,DRMN_23910_5470482,00.html