Qwest civil trial's focus whittled down
Judge urges SEC to shelve charges to keep U.S. secrets
By Jeff Smith
Rocky Mountain News
Tuesday, February 5, 2008
A federal magistrate Monday encouraged the Securities and
Exchange Commission to consider eliminating civil-fraud
allegations against five former Qwest executives that could
implicate national secrets.
Magistrate Judge Craig Shaffer indicated such classified
information likely won't be allowed in a civil-fraud trial, and
now is the time for the SEC to come to grips with the issue.
"You have to decide the battleground you want to fight," Shaffer
told an SEC official.
While the defendants hope the case eventually will be thrown
out, Shaffer's ruling may merely mean the SEC will be compelled
to narrow allegations to individual transactions with private
companies, such as alleged secret side deals and backdated
Shaffer issued a temporary order prohibiting any exchange of
evidence related to intelligence issues, in part to give the SEC
time to reconsider how to try its 3-year-old case. He
asked for a status report in 30 days. A trial date hasn't
The SEC alleges former Qwest CEO Joe Nacchio, former Chief
Operating Officer Afshin Mohebbi, former Chief Financial Officer
Robert Woodruff and two former accountants engaged in a $3
billion financial fraud between 1999-2002.
The issue of classified information came up because Nacchio
maintains he personally knew the
telco was poised to land lucrative classified telecommunications
The Justice Department recently stepped in, citing a statute in
asserting that classified documents can't be released in a civil
proceeding because they would cause damage to foreign relations
and national security.
Polly Atkinson, trial counsel for the SEC in Denver, didn't argue with those points Monday,
but did maintain the bulk of the SEC case against the former
Qwest executives doesn't implicate state secrets.
"Our case is primarily a historical case," Atkinson said.
"It's not what you expected (to get in terms of contracts), but
what did you get?"
Nacchio attorney Jeffrey Speiser disagreed, saying an
"overwhelming bulk if not all" of the SEC case involves state
secrets because it goes to Nacchio's state of mind at the time.
Other defendants in the case are latching onto the national
Similar issues about classified information came up during
Nacchio's criminal trial, in which he was convicted of 19 counts
of insider trading and is now free pending appeal. In the
criminal trial, federal Judge Edward Nottingham ruled much of
the classified information was irrelevant.
Shaffer suggested the SEC might have to rethink some of the
allegations involving Qwest's fiber-optic capacity swaps, which
allegedly were used to boost revenue. The SEC claims
two-thirds of the international capacity Qwest bought wasn't
Nacchio maintains there was a business purpose -- Qwest needed
to have the capacity on hand for potential