team ponders 'unusual defense'
Secret deals misled Qwest's former CEO, attorneys may argue
By Jeff Smith, Rocky Mountain News
Tuesday, November 22, 2005
A possible defense floated by former Qwest Chief Executive
Joe Nacchio - who could be indicted on insider-trading
charges before year-end - raised some eyebrows Monday.
The Wall Street Journal
reported that Nacchio's attorneys have been "mounting an
unusual defense," arguing their client believed the Denver
telco was in good shape in the spring of 2001 because it was
getting "lucrative secret" national security-related
contracts and was in position to get more.
Former federal prosecutor Tony Leffert of Denver said it
struck him as unusual that the specifics of a defense would
be circulated, presumably by the defense team, before a
possible indictment is returned. And Leffert noted the
defense at least on the surface isn't logically consistent
with Nacchio selling about $50 million of Qwest stock in
April and May of 2001.
"In most insider-trading cases where executives are selling
stock, it's an unusual circumstance where they thought the
company was doing well," said Leffert, a partner at Robinson
Waters & O'Dorisio.
which cited anonymous sources, reported that Herbert Stern,
a former federal judge and federal prosecutor, has become
Nacchio's lead defense attorney. Neither Stern nor Nacchio's
former lead attorney, Charles Stillman, returned phone calls
Jeff Dorschner, a spokesman for the U.S. attorney's office
in Colorado, declined to comment on the
article. Dorschner also declined to comment on whether
federal prosecutors had issued Nacchio a "target letter,"
which sometimes precedes an indictment and could spark a
last-ditch effort by the defense to thwart criminal charges.
Stillman, in disputing civil fraud charges against Nacchio,
has argued in court filings that Nacchio at most was guilty
of "puffery" and "corporate optimism" - but didn't mislead
investors. Analysts started to question Qwest's finances in
June 2001, and the company's stock and performance unraveled
Nacchio's stock sales in early 2001 were previously defended
as an effort to diversify his investment portfolio. His
proceeds came from exercising stock options.
reported that Nacchio's defense team is arguing he was in a
"unique position" to believe his company was still
performing well because he was serving on two federal
advisory panels dealing with national security issues - the
Network Reliability and Interoperability Council and the
National Security Telecommunications Advisory Committee.
But Nacchio reportedly wasn't nominated by President Bush to
serve on the second panel until July 2001.
Former Qwest Chief Financial Officer Robin Szeliga already
has pleaded guilty to insider trading concerning a
transaction in the spring of 2001, and federal prosecutors
are thought to be focusing on that period of time. In her
plea agreement, Szeliga said Qwest senior executives knew by
at least April 24, 2001, that Qwest was meeting its bullish
revenue targets only through questionable and undisclosed
one-time capacity sales.
On April 24, 2001, Nacchio reported double-digit revenue
growth for Qwest's first quarter at a time other telcos were
weakening. Qwest's news release highlighted numerous
reasons for the company's growth but didn't mention federal
In the conference call that day, Nacchio poked fun at AT&T's
weaker performance, saying, "To quote a famous English group
(Monty Python), 'And now for something completely