Nacchio found guilty
By Rocky Mountain News
Thursday, April 19, 2007
For a few minutes Thursday afternoon, Joe Nacchio dared to
smile. Seated between his attorneys, the former Qwest CEO and
one-time titan of the telecom industry looked hopeful as U.S.
District Judge Edward Nottingham read verdicts of not guilty to
the first 23 counts of insider trading. In the first row behind
the defense table, Nacchio’s son Michael put his head in his
hands and sobbed with relief.
Then the hammer dropped. Nottingham read 19 consecutive guilty
verdicts — enough to send Nacchio to prison for 10 years or
more. He also could be ordered to pay up to $19 million in
fines and forfeit the $52 million in proceeds from the 19
His smile gone, Nacchio sat expressionless for much of the rest
of the proceeding. When it was over, he stood beside his wife,
who put one arm around him, and walked quietly from the federal
courthouse, his son and attorneys beside him.
"I’m not going to make any statements," he said.
His lead defense attorney, Herbert Stern, said only: "We’ll
Nacchio, who is free on $2 million bail, is scheduled to return
to Denver for sentencing July 27.
Outside the courthouse lead prosecutor Cliff Stricklin said
justice had been done for the people of Colorado and for every
investor who lost money in Qwest stock while Nacchio profited.
"Insider trading is not a victimless crime," Stricklin said.
"There were victims here, lots of them, who lost their hopes and
dreams while other people at Qwest took the easy way out and
Nacchio was charged with 42 counts, one for each time he sold
Qwest stock between Jan. 2 and May 29, 2001. He grossed $100.8
million from the sales.
Prosecutors said Nacchio knew when he sold the stock that Qwest
was headed for financial trouble because the company was relying
too heavily on unsustainable one-time deals to make its
numbers. The CEO should have shared that information with
investors before he sold, they argued.
The jury of eight men and four women acquitted Nacchio on the 23
charges stemming from stock sales during the first quarter of
But they returned guilty verdicts on the trades that occurred
after the end of the first quarter — a point at which Nacchio
was "loaded up" with inside information that the 2001 earnings
projections were an impossibility, Stricklin said.
The jury deliberated for six days before announcing around 4
p.m. that it had a verdict. Several jurors, reached outside the
courthouse, declined to comment.
The government called eight former Qwest executives to the
witness stand during nearly four weeks of testimony, most of
whom testified under immunity or plea deals. They included Lee
Wolfe, the former head of investor relations, former Chief
Financial Officer Robin Szeliga, and former President and Chief
Operating Officer Afshin Mohebbi.
Szeliga and Mohebbi, as well as the former heads of various
Qwest business units, told jurors they warned Nacchio throughout
late 2000 and early 2001 that the company was unlikely to meet
its goals. As early as September 2000, Szeliga said, top
executives were estimating the company would be $1 billion short
of the $21.3 billion to $21.7 billion in revenue projected for
Mohebbi said he wrote several memos to Nacchio, including one in
which he described the projections as a "huge stretch."
Investors repeatedly asked Qwest officials to reveal how much of
its growth was coming from the so-called "one-timers," Wolfe
told jurors. But Nacchio didn’t reveal the extent to which
Qwest was relying on one-timers until August 2001. The
following month, he lowered Qwest’s guidance to Wall Street.
Nacchio’s defense attorneys argued he was an entrepreneurial CEO
who believed the company could reach its aggressive growth
The executives who raised red flags, they said, were referring
not to the guidance Qwest gave Wall Street but to higher,
internal targets. Those numbers were used to determine whether
employees received bonuses, so they had an incentive to convince
Nacchio to lower them, the defense said.
The defense presented just three witnesses, who gave a total of
about four hours of testimony. They included Qwest founder Phil
Anschutz; a priest who works at the private New Jersey school
Nacchio’s sons attended; and a paid consultant who testified
about Nacchio’s stock sales.
Anschutz told jurors Nacchio came to him in January 2001 in
tears and wanting to quit because one of his sons had attempted
suicide. Stern said during his closing argument that if Nacchio
knew, as prosecutors allege, that Qwest’s stock price was about
to fall, he could have left the company that day, cashing out
hundreds of thousands of valuable options.
"If he had a corrupt heart, if he was a man who was intent on
cheating people, covering up, finding ways to slime on, he had
the perfect out," Stern said.
But prosecutors noted that Nacchio didn’t leave. Instead, he
signed a new contract with a larger salary and bonus and later
received more stock options.
By April 2001, they said, Nacchio was unloading stock at a rate
three times faster than the previous year.
Nacchio's conviction is the latest in a crackdown on corporate
fraud that began when Enron Corp. collapsed in 2001. Dozens
executives have been convicted, including four ex-CEOs: Nacchio,
Enron’s Jeffrey Skilling, Bernie Ebbers of WorldCom Inc. and
John Rigas, founder of Adelphia Communications Corp., the
cable-TV company that at its end was headquartered in Greenwood
After Thursday’s verdict, U.S. Attorney for Colorado Troy Eid
thanked the prosecution team and the special agents from the FBI
and postal inspector’s office who worked the case, some for more
than five years. Prosecutors also thanked the jury for what Eid
called "an overwhelming determination of guilt."
"Today, 12 very courageous jurors sent a message from right here
in Denver, all the way to Wall Street and inside every corporate
boardroom in America that nothing short of a level playing field
will be tolerated," prosecutor Colleen Conry said. "Joe Nacchio
got that message loud and clear today."