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Former Qwest CFO in hot seat
Szeliga likely to face defense's wrath in Nacchio case
By Andy Vuong and Greg Griffin, Staff Writers
Denver Post

Monday, July 31, 2006

Former Qwest chief financial officer Robin Szeliga appears headed for the same scorching seat that ex-Enron CFO Andrew Fastow once occupied.

Fastow was the star witness in the fraud and conspiracy trial of former Enron chairman Ken Lay and former chief executive Jeff Skilling.  On the stand, Fastow endured taunts and personal attacks from the defense.

Szeliga is expected to be the star witness in the government's insider-trading case against former Qwest CEO Joe Nacchio.  Experts say she will also likely face significant heat on the witness stand.

In December, the Justice Department charged Nacchio with 42 counts of illegal insider trading.  Nacchio sold $100.8 million in stock from January to May 2001.  The government alleges that he knew then, but did not disclose to the public, that Qwest was in unstable financial condition.

Nacchio, who left Qwest in June 2002, has pleaded not guilty.  Szeliga committed illegal insider trading in April 2001, within the same time frame that Nacchio is accused of committing illegal insider trading.

U.S. Attorney Bill Leone said Friday that Szeliga is in a position to provide "indispensable testimony."

Former federal prosecutor William Mitchelson said Szeliga will be center stage.

"Having someone like Szeliga, who can give context to what Nacchio knew and when he knew it, is critical to prosecuting that case," said Mitchelson, now a white-collar criminal defense lawyer with Alston & Bird in Atlanta.

Szeliga was sentenced Friday to two years of probation, including six months of home detention, and a $250,000 fine for illegal insider trading.

A trial date in Nacchio's case hasn't been set.  It likely won't happen until next year.  Nacchio faces up to 10 years in prison and a $1 million fine on each of the 42 illegal-insider-trading charges.

Several former federal prosecutors said that it's uncommon for key witnesses to be sentenced before giving their testimony.

"Once a government witness is sentenced, it's possible they could lose their incentive to cooperate.

Sentencing holds a hammer over their head," said Robert Blume, a former federal prosecutor in Washington, D.C., now in private practice with Gibson, Dunn & Crutcher in Denver.

The Justice Department said it is not concerned that Szeliga will lose motivation.

"Robin Szeliga's plea agreement requires that she cooperate with the government's investigation up to and including testimony. ... That cooperation does not end after she is sentenced," said Jeff Dorschner, a spokesman for the U.S. attorney's office in Denver.

Terry Bird, Szeliga's attorney, said Friday she still intends to fully cooperate.

Former HealthSouth Corp. CFO William Owens pleaded guilty to fraud and conspiracy charges.  He then provided key testimony against Richard Scrushy during the former chief executive's fraud trial last year.  Scrushy wasn't convicted, but Owens was later sentenced to five years in prison.

Former WorldCom chief financial officer Scott Sullivan pleaded guilty to fraud and conspiracy charges.  He was sentenced to five years in prison in August after providing key testimony that helped convict former chief executive Bernard Ebbers.  Ebbers received 25 years in prison, a conviction upheld Friday by a federal appeals court.

Fastow pleaded guilty to two counts of conspiracy and received a sentence of 10 years in prison.  Fastow, an architect of Enron's fraud, received that sentence before testifying to Lay's and Skilling's roles.  Lay and Skilling were convicted in May, primarily on fraud and conspiracy charges.  Skilling, who has appealed his conviction, faces up to 10 years on each of 19 counts.  He could be sentenced later this year.  Lay died this month.

Fastow was grilled extensively by defense attorneys, who tried to undermine his credibility for having reached a plea deal with the government.

The attacks were sometimes personal.  In one exchange, Skilling attorney Daniel Petrocelli said, "Your greed was so great that you allowed your wife to go to prison."

Fastow's wife, Lea, was sentenced to one year in prison after pleading guilty to a misdemeanor tax crime.

Legal experts expect Szeliga to also face significant heat on the witness stand.

"She's going to be attacked by Nacchio's lawyers as having been bought and paid for by the government prosecutors," Mitchelson said.  "She's going to be subjected to withering cross-examination by the Nacchio defense team."

Szeliga, 45, joined Qwest in 1997 as vice president of finance.  In March 2001, she became Qwest's CFO, succeeding Robert Woodruff.  Szeliga was replaced as CFO in 2002, left Qwest in 2003 and was indicted in 2005.

April 2001 appears to be at the center of the Nacchio insider-trading case.

According to the U.S. Securities and Exchange Commission's civil charges against Nacchio and court documents, the following occurred during that month:

On April 24, Nacchio and Szeliga issued Qwest's first-quarter earnings release ... (and) ... falsely claimed in the release that Qwest's growth stemmed from various recurring-revenue products.

On April 29, Nacchio stated fraudulently (on Fox News Channel) that "most of our growth comes from development of new products ..."

On April 30, Szeliga exercised 10,000 stock options and sold the shares, netting a profit of $125,000.

Staff writer Andy Vuong can be reached at 303-820-1209 or avuong@denverpost.com.

http://www.denverpost.com/business/ci_4115184