Former CEO Says U.S. Punished Phone Firm
Qwest Feared NSA Plan Was Illegal, Filing Says
By Ellen Nakashima and Dan Eggen, Staff Writers
Saturday, October 13, 2007
A former Qwest Communications International executive, appealing
a conviction for insider trading, has alleged that the
government withdrew opportunities for contracts worth hundreds
of millions of dollars after Qwest refused to participate in an
unidentified National Security Agency program that the company
thought might be illegal.
Former chief executive Joseph P. Nacchio, convicted in April of
19 counts of insider trading, said the NSA approached Qwest more
than six months before the Sept. 11, 2001, attacks, according to
court documents unsealed in Denver this week.
Details about the alleged NSA program have been redacted from
the documents, but Nacchio's lawyer said last year that the NSA
had approached the company about participating in a warrantless
surveillance program to gather information about Americans'
In the court filings disclosed this week, Nacchio suggests that
Qwest's refusal to take part in that program led the government
to cancel a separate, lucrative contract with the NSA in
retribution. He is using the allegation to try to show why his
stock sale should not have been considered improper.
Nacchio was convicted for selling shares of Qwest stock in early
2001, just before financial problems caused the company's share
price to tumble. He has claimed in court papers that he had
been optimistic that Qwest would overcome weak sales because of
the expected top-secret contract with the government. Nacchio
said he was forbidden to mention the specifics during the trial
because of secrecy restrictions, but the judge ruled that the
issue was irrelevant to the charges against him.
Nacchio's account, which places the NSA proposal at a meeting on
Feb. 27, 2001, suggests that the Bush administration was seeking
to enlist telecommunications firms in programs without court
oversight before the terrorist attacks on New York and the
Pentagon. The Sept. 11 attacks have been cited by the
government as the main impetus for its warrantless surveillance
The allegations could affect the debate on Capitol Hill over
whether telecoms sued for disclosing customers' phone records
and other data to the government after the Sept. 11 attacks
should be given legal immunity, even if they did not have court
authorization to do so.
Spokesmen for the Justice Department, the NSA, the White House
and the director of national intelligence declined to comment,
citing the ongoing legal case against Nacchio and the classified
nature of the NSA's activities. Federal filings in the appeal
have not yet been disclosed.
In May 2006, USA Today reported that the NSA had been secretly
collecting the phone-call records of tens of millions of
Americans, using data provided by major telecom firms. Qwest,
it reported, declined to participate because of fears that the
program lacked legal standing.
In a statement released after the story was published, Nacchio
attorney Herbert Stern said that in fall 2001, Qwest was
approached to give the government access to the private phone
records of Qwest customers. At the time, Nacchio was chairman
of the president's National Security Telecommunications Advisory
"Mr. Nacchio made inquiry as to whether a warrant or other legal
process had been secured in support of that request," Stern
said. "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."
Stern could not be reached for comment yesterday. Another
lawyer for Nacchio, Jeffrey Speiser, declined to comment on
whether the call-records program was the program discussed at
the February 2001 meeting.
In a May 25, 2007, order, U.S. District Judge Edward W.
Nottingham wrote that Nacchio has asserted that "Qwest entered
into two classified contracts valued at hundreds of millions of
dollars, without a competitive bidding process and that in 2000
and 2001, he participated in discussion with high-ranking
[redacted] representatives concerning the possibility of
awarding additional contracts of a similar nature." He wrote,
"Those discussions led him to believe that [redacted] would
award Qwest contracts valued at amounts that would more than
offset the negative warnings he was receiving about Qwest's
The newly released court documents say that, on Feb. 27, 2001,
Nacchio and James Payne, then Qwest's senior vice president of
government systems, met with NSA officials at Fort Meade,
expecting to discuss "Groundbreaker," a project to outsource the
NSA's non-mission-critical systems.
The men came out of the meeting "with optimism about the
prospect for 2001 revenue from NSA," according to an April 9,
2007, court filing by Nacchio's lawyers that was disclosed this
But the filing also claims that Nacchio "refused" to participate
in some unidentified program or activity because it was possibly
illegal and that the NSA later "expressed disappointment" about
"Nacchio said it was a legal issue and that they could not do
something that their general counsel told them not to do. . . .
Nacchio projected that he might do it if they could find a way
to do it legally," the filing said.
Mike German, policy counsel for the American Civil Liberties
Union, said the documents show "that there is more to this story
about the government's relationship with the telecoms than what
the administration has admitted to."
Kurt Opsahl, senior staff attorney for the Electronic Frontier
Foundation, said: "It's inappropriate for the government to be
awarding a contract conditioned upon an agreement to an illegal
program. That truly is what's going on here."
The foundation has sued AT&T, charging that it violated privacy
laws by cooperating with the government's warrantless
Staff researcher Richard Drezen contributed to this report.