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Classified evidence OK'd in Nacchio trial
By Jeff Smith
Rocky Mountain News
Thursday, December 7, 2006

Former Qwest CEO Joe Nacchio's attorneys say their client believed the Denver telco would be awarded hundreds of millions of dollars in government contracts in 2001 -- more than enough to offset the warnings he was receiving about the company's finances.  Denver federal Judge Edward Nottingham ruled to allow certain evidence about those prospective classified contracts.  This allows Nacchio's defense to try to make its arguments at a trial that begins March 29.

Nottingham has rejected the admissibility of other classified information as being vague or irrelevant.

Nottingham actually issued his order about the admissibility of some of the classified government evidence in late October, but it wasn't made available to the public until Wednesday.

The filing gives additional details of what could be key aspects of Nacchio's defense.  He faces 42 counts of insider trading in connection with selling more than $100 million of stock in the first five months of 2001.

A major issue in the trial will be Nacchio's "state of mind" at the time he sold the stock.  The defense is arguing Nacchio acted in "good faith" when he sold his stock, believing Qwest's financial condition was as good as portrayed to the investing public.  Prosecutors will need to prove he acted willfully to defraud, according to Nottingham's order.

Jeff Dorschner, spokesman for the U.S. attorney's office in Colorado, declined to comment Wednesday.  Prosecutors previously have questioned the relevance of the classified information to the case.

The filings indicate the government in part had argued unsuccessfully for certain classified facts to be summarized, rather than argued in detail during the trial.  Filings also indicate that several of the government's key witnesses, including former Chief Operating Officer Afshin Mohebbi, are prepared to testify that Qwest's forecasts already incorporated potential classified government contracts.

In the filings, Nacchio maintains Qwest was approached by four "clandestine" agencies -- including the Department of Defense and the National Security Council staff -- because it had a new and "superior" fiber-optic network.  The prospective contracts weren't required to go through lengthy appropriations or bidding.

In fact, Qwest once got a contract through a single phone call, the filings indicate.

But because of the security clearance required, defense attorneys argue that Nacchio couldn't share the information with the same executives, such as Mohebbi, who were giving him warnings about Qwest's financial prospects.

Nacchio maintains the information about prospective classified government contracts also couldn't be included in Qwest's revenue projections, news releases, regulatory filings or public guidance.

The court filings indicate that Nacchio's attorneys may argue that Qwest already had been awarded a $500 million contract with the Department of Defense and certain agencies were "actively considering" awarding Qwest "hundreds of millions of dollars" of additional contracts in 2001.

At issue

  The ruling:  Certain evidence about prospective classified government contracts may be admitted at the March trial of former Qwest CEO Joe Nacchio.

  Why it's important:  Nacchio argues he was optimistic about Qwest's financial condition despite dire warnings because he believed the company would be getting lucrative contracts from federal defense and national security agencies.

http://www.rockymountainnews.com/drmn/tech/article/0,2777,DRMN_23910_5196019,00.html