AUSWR
The Association of U S West Retirees
 

 

 

Nacchio trial evidence made public 
By Greg Griffin, Staff Writer
Denver Post 
Friday, May 11, 2007

Prosecutors released 500 exhibits Thursday used to convict former Qwest chief executive Joe Nacchio of illegal insider trading, including warnings he received in April 2001 that recurring sales were down and the company was relying too heavily on one-time deals.

The evidence includes 488 documents comprising thousands of pages, 10 video clips of Nacchio speeches and two audio recordings of Nacchio presentations to analysts.  The documents and recordings span a time frame of 1998 to 2001.

The Denver Post has placed selected pieces of the evidence on its website at nacchiotrial.com.

Nacchio was convicted April 19 on 19 of 42 insider-trading charges.  He was accused of selling $100.8 million shares of Qwest stock from January to May 2001, when he knew the company was in financial trouble.  Sentencing is set for July 27.  The evidence released Thursday included:

-  Notes Nacchio received from former Qwest president Afshin Mohebbi.

Calling Qwest's publicly stated 2001 earnings targets a "huge stretch," Mohebbi warned that Qwest needed strong growth in recurring revenue early in the year.  He said one-time sales of Qwest's network capacity could not be relied upon to make the numbers.

-  Warnings Nacchio received throughout early 2001 informing him that recurring sales were down and the company was relying too heavily on one-timers.

Those warnings culminated in early April, when executives told Nacchio that shortfalls in recurring revenues were $329 million.  The company was filling the gap with one-time sales of network capacity at a rate 30 percent higher than planned.

-  Nacchio's public pronouncements to Qwest employees, analysts and investors affirming the company's earnings targets.

-  The government used video and audio clips to show that Nacchio was touting Qwest's performance even as he was receiving dire warnings internally.  On April 25, Nacchio assured analysts Qwest would make its 2001 numbers.  Over the next few days, he dumped hundreds of thousands of Qwest shares.

-  Qwest's publicly released documents setting, raising, affirming and, finally, in September 2001, lowering its 2001 guidance.

-  Documents from analysts questioning Qwest's accounting starting in June 2001.

-  In a July 2001 e-mail to Nacchio, Goldman Sachs analyst Prashant Khemka said, "The lack of transparency is going to hurt you because investors don't know how many cockroaches you still have in your bag."

Other documents that were important at trial but may not have played as large a role in the conviction include:

-  Documentation supporting the government's contention that Nacchio backdated a stock-sales document.  The government released a sales instruction dated Nov. 3, 2000, that it said Nacchio actually executed more than a month later.  It also released key communications with Nacchio's financial planner.

-  Nacchio's financial records from December 2000 putting his net worth at $547 million.

Staff writer Greg Griffin can be reached at 303-954-1241 or ggriffin@denverpost.com.

http://www.denverpost.com/ci_5867291