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Phone flap may benefit Nacchio
NSA rebuff might help in Qwest case
By Jeff Smith
Rocky Mountain News
Saturday, May 13, 2006

Joe Nacchio's attorney confirmed Friday that the former chief executive of Qwest Communications refused to turn over customer telephone records to the National Security Agency because he didn't think the program had legal standing.  "When he learned that no such authority had been granted . . . Mr. Nacchio concluded that these requests violated the privacy requirements of the Telecommunications Act," said a statement by Nacchio's attorney, Herbert Stern.

The statement was described as an effort to clear up the "apparent confusion" about Nacchio's role in declining to participate in the NSA program following the terrorist attacks of Sept. 11, 2001, and "to negate misguided attempts to relate Mr. Nacchio's conduct to present litigation."

A legal expert, however, said Stern's statement itself appears to be evidence of using Nacchio's decision in 2001 to help his defense against 42 criminal counts of insider trading and a slew of civil fraud lawsuits.

"It appears the strategy is in place," said Craig Silverman, a former Denver prosecutor and now a private attorney and talk-show host.

"When you're defending your freedom and fortune, you'll use anything and everything you can so, of course, he will try to utilize this.  Joe Nacchio came out looking good in that story. . . . It puts him back on the side of the little guy against an overreaching U.S. government."

Conversely, the favorable publicity may make it more difficult for Nacchio to win a change of venue from Denver, which legal experts already had regarded as a long shot.

USA Today reported Thursday that Qwest, first under Nacchio and then under Dick Notebaert, was the only one of four phone companies to balk at helping the NSA create a massive database of telephone records.  The NSA reportedly uses those records to analyze calling patterns that may indicate terrorist organizational activities.

Qwest may have declined to help the NSA in part to prevent possible lawsuits:  On Friday, two New Jersey lawyers sued Verizon for $5 billion for turning over private phone records.  AT&T also already has been sued.

Long before the phone record story this week, Nacchio had been floating a possible "national security" defense against charges that he illegally sold $100 million of Qwest stock in the first five months of 2001 while knowing the telco was faltering.

The defense goes something like this:  Nacchio was optimistic about Qwest's financial condition because his secret work on a top presidential advisory panel led him to believe the Denver telco was in line to land some major federal contracts.

The panel was President Bush's National Security Telecommunications Advisory Committee, or NSTAC.

Bush didn't officially appoint Nacchio to the committee, as vice chair, until July 9, 2001, but two sources familiar with the situation said Nacchio was cleared to hear classified information by about March 2001.  An old NSTAC Web site also lists Nacchio a member by at least April 2001.

That would still leave questions about Nacchio's defense for January and February 2001.

The 30-member industry panel provides recommendations to the president on national security and emergency-preparedness issues, and hears from top government officials on the matters.  It meets annually in person and quarterly by conference call, but members frequently discuss issues in between those meetings.

At the annual NSTAC meeting in June 2001 in Washington, Nacchio sat next to Richard Clarke, then the counterterrorism adviser on the U.S. National Security Council, sources said.

At first blush, this week's USA Today report would seem to contradict Nacchio's defense that he was optimistic about getting federal contracts.

However, the timing could play to his advantage.  His legal team may try to argue that Qwest lost the federal business Nacchio thought it would get because he took a stand against the NSA.

But his attorneys still will need to fill in the gaps between the insider-trading period ending in May 2001 and the start of the NSA program in late 2001.

"Before the trial and during the trial, the defense is going to accuse the prosecution of various forms of misconduct and overzealousness, and it's easy to anticipate they will claim retaliation by the U.S. government for Joe Nacchio standing up to them on this NSA request," Silverman said.

"There's a lot of things at play," he added.  "Nacchio used to be part of George W. Bush's team, but now the Justice Department is trying to take all of his money and freedom."

Nacchio's lawyers recently got security clearance to examine the classified information Nacchio possessed, but it's unclear how the strategy will play out.

"It's all wild speculation," said Donna Jaegers, a telecommunications analyst with Janco Partners in Greenwood Village.

Jaegers does have an anecdote of her own.  She recalls meeting with Nacchio -- perhaps after an NSTAC meeting -- when he was "ga-ga," as she put it, over the possibility of Qwest getting contracts to provide services for the government's private Internet network.

She said she remembers Nacchio talking about how everyone was worried about the increasing number of debilitating attacks on personal computers.  But she said she can't remember exactly when the conversation occurred, although perhaps it was sometime in 2001.

Jeff Dorschner, spokesman with the U.S. attorney's office in Colorado, declined to comment Friday.  But prosecutors previously have said they believe Nacchio's national security defense is irrelevant to the case.

Federal Judge Edward Nottingham also would have to rule whether any evidence is relevant and should be heard by a jury.

Records show Qwest has landed at least a dozen major federal contracts since the fall of 2001. At least two of those contracts came before Nacchio was ousted from Qwest in June 2002, including a communications backbone services contract with the Department of Defense.

Nacchio's next pre-trial hearing is scheduled for July 14, and a trial date is expected to be set then.

Statement

The statement issued Friday by Herbert Stern, attorney for former Qwest CEO Joe Nacchio, related to the National Security Agency request for private telephone records:

In light of pending litigation, I have been reluctant to issue any public statements.  However, because of apparent confusion concerning Joe Nacchio and his role in refusing to make private telephone records of Qwest customers available to the NSA immediately following the Patriot Act, and in order to negate misguided attempts to relate Mr. Nacchio's conduct to present litigation, the following are the facts.

In the Fall of 2001, at a time when there was no investigation of Qwest or Mr. Nacchio by the Department of Justice or the Securities and Exchange Commission, and while Mr. Nacchio was Chairman and CEO of Qwest and was serving pursuant to the President's appointment as the Chairman of the National Security Telecommunications Advisory Committee, Qwest was approached to permit the Government access to the private telephone records of Qwest customers.

Mr. Nacchio made inquiry as to whether a warrant or other legal process had been secured in support of that request.  When he learned that no such authority had been granted and that there was a disinclination on the part of the authorities to use any legal process, including the Special Court which had been established to handle such matters, Mr. Nacchio concluded that these requests violated the privacy requirements of the Telecommunications Act.

Accordingly, Mr. Nacchio issued instructions to refuse to comply with these requests.  These requests continued throughout Mr. Nacchio's tenure and until his departure in June of 2002.

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