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Nacchio witness list takes form
Prosecutors working deals to bring former Qwest execs to stand
By Jeff Smith, Rocky Mountain News
Saturday, December 3, 2005

Prosecutors are negotiating last-minute deals with several former top Qwest executives in efforts to "bullet-proof" a likely insider-trading case against former Chief Executive Joe Nacchio, a source familiar with the investigation said Friday.  Afshin Mohebbi, former president and chief operating officer, has agreed to cooperate with the government in exchange for immunity from criminal prosecution, and prosecutors are trying to negotiate a tougher deal with Drake Tempest, Qwest's former chief legal officer, the source said.

Former Chief Financial Officer Robin Szeliga already has pleaded guilty to insider trading in relation to a stock sale in April 2001, with her sentence dependent on her cooperation and possible testimony.

Prosecutors are trying to "bullet-proof their case against Joe by lining everyone up" as potential key witnesses, said the source.

Two sources still expect an indictment against Nacchio to be sought from a federal grand jury before year-end, although the latest developments show the prosecution still is working to bolster its case.

Such efforts are typical in corporate prosecutions.  It was unclear Friday whether the effort is being spurred by questions grand jurors may be asking or by other factors, such as the possible implications of a national security defense strategy being floated by Nacchio's legal team.

Jeff Dorschner, spokesman for the U.S. attorney's office, couldn't be reached Friday but has previously declined to comment except to say the criminal investigation is continuing.  Nacchio's attorney Herbert Stern didn't return a phone call this week.

The investigation is believed to be focusing on the spring of 2001.  Szeliga said in her plea agreement that other Qwest senior executives knew by at least April 24, 2001, that Qwest was boosting its numbers through questionable, undisclosed deals.  Nacchio sold about $50 million of stock in a three-week flurry starting April 26, 2001.

Nacchio has repeatedly denied any wrongdoing and, through one of his attorneys, has said he sold stock to diversify his portfolio.

Prosecutors wanted to get Mohebbi to plead guilty to a criminal charge, the source said, but apparent immunity isn't a surprise.  Although e-mails implicated Mohebbi in some questionable fiber-optic capacity deals, he didn't make money on stock sales during that time, nor did he play a key role in disclosing financial information to investors.  Mohebbi's attorneys didn't return phone calls Friday.

Tempest, who did sell stock in the spring of 2001, could be an even more important government witness if a deal is reached.  Besides being the top chief legal officer, Tempest was close to Nacchio, often commuting with him to the East Coast on weekends and having dinner with him in Denver.  Tempest's attorney James Nesland didn't return a phone call Friday.

Other possible witnesses against Nacchio could include Gregory Casey, Qwest's former top sales executive, several former finance executives, and Mark Iwan, a former Arthur Andersen audit partner.

Casey has settled civil-fraud charges related to his role in fudging network-capacity deals.  Iwan, who was disciplined by the Securities and Exchange Commission but doesn't face fraud charges, raised red flags about Qwest's deals and disclosures to the company's audit committee chairman and finance executives in the spring of 2001.

The Wall Street Journal reported last week that Nacchio's lawyers recently have been pursuing an unusual national-security defense, arguing Nacchio believed through his position on a President Bush-appointed panel that Qwest was poised to land some major federal contracts.

While some have painted that strategy as desperate, former federal prosecutor Christopher Bebel said it could pose prosecution problems.

"This tactic may appear unseemly, but it constitutes good lawyering," Bebel said by e-mail this week.  He said the strategy initially is being used to try to get the prosecution to think twice about seeking an indictment.

If an indictment against Nacchio is returned, the defense could "argue that the jury must be told of key national security considerations he was aware of, and which impacted his thought process," Bebel said.  "If the judge declares certain national security information off limits, Nacchio will be able to make a strong argument in this area on appeal (if he's convicted) - he will claim that his inability to put this evidence before the jurors effectively denied him of his right to a fair trial."

http://rockymountainnews.com/drmn/other_business/article/0,2777,DRMN_23916_4285737,00.html