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Nacchio claims acts in good faith
By Jeff Smith
Rocky Mountain News
Thursday, June 7, 2007

Former Qwest CEO Joe Nacchio denied allegations he orchestrated a $3 billion massive financial fraud at the Denver telco between 1999 and 2002, saying he acted in good faith "at all times" and relied on accounting and legal experts.  Nacchio's denials came in a 36-page response filed by his attorneys late Tuesday to an amended civil-fraud lawsuit by the Securities and Exchange Commission.

The filing reiterated claims that Nacchio was privy to "top secret information" regarding classified government contracts that led him to reasonably believe in Qwest's ability to meet its financial targets.

The SEC is seeking potentially hundreds of millions of dollars in alleged "ill-gotten" gains and civil penalties.

Some discovery, or evidence exchange, against Nacchio is on hold while he challenges his recent conviction on 19 criminal counts of insider trading.  Experts say the SEC suit has a greater chance of success now that he has been found guilty of criminal activity in connection with selling $52 million of stock in spring 2001.

Nacchio said he relied on the advice of internal and outside lawyers and auditors, and the audit committee of the board of directors.

Nacchio said a reasonable accountant could conclude the swaps could be treated as "sales-type leases" and revenue therefore could be booked upfront.  Nacchio said he wasn't informed that alleged secret side deals were made that invalidated the accounting of some deals.

Qwest has since erased more than $2.5 billion of revenue from its 2000 and 2001 books, including nearly $1 billion in revenue from swaps of network capacity with other carriers.

Separately in the criminal case, Nacchio's attorneys this week filed a new round of motions for acquittal, a new trial and a change of venue.  The filings included hundreds of pages of exhibits in support of their contention that massive, "prejudicial" media coverage before and during the trial prevented Nacchio from receiving a fair trial.

Nacchio's attorneys said in the filings that 14 of 18 jurors and alternates had knowledge of the case beforehand, and that the publicity didn't die down during the trial as predicted by U.S. District Judge Edward Nottingham.  Reflecting the public hostility toward Nacchio, the filings cited two incidents in which motorists shouted obscenities and hostile remarks, including "Hey Nacchio, I hope you get cancer and die."

smithje@RockyMountainNews.com or 303-954-5155

http://www.rockymountainnews.com/drmn/tech/article/0,2777,DRMN_23910_5574091,00.html