AUSWR
The Association of U S West Retirees
 

 

 

Nacchio to prison for six years 
By Tom McGhee and Andy Vuong, Staff Writers 
Denver Post 
Friday, July 27, 2007

A federal judge this morning ordered former Qwest chief Joe Nacchio to serve six years in prison and to pay $71 million in fines and forfeitures for illegal insider stock trades he made in 2001.

U.S. District Judge Edward Nottingham also ordered Nacchio to pay $19 million in fines and to forfeit $52 million he made from the stock trades. Nacchio will also have to spend two years in supervised release once he finishes his prison term.

Nacchio's request to be released on bond pending an appeal of his conviction was denied.

Nacchio, 57, requested to serve his time in a prison in Pennsylvania. But Nottingham said he has no control over that. The choice of prison is to be determined by the U.S. Bureau of Prisons. Once the decision i
s made, which typically takes about a month, Nacchio will have 15 days to report. Nottingham gave him 15 days from today to pay the $52 million forfeiture. Nacchio declined to comment to reporters before leaving the courthouse, as did his lawyers.

Nacchio wept at the podium before Nottingham ordered the prison sentence. His wife wept also while his son, Michael, remained stoic.

Nottingham said before handing out the prison sentence that Nacchio's charitable giving wasn't enough to be a factor in reducing his sentence. Nottingham called it ordinary, considering Nacchio's wealth. He also said Nacchio had been generous to his family.

"They all relied on Uncle Joe to take good care of them," Nottingham said, quoting from a letter he received from a Nacchio family member. "But it is not unusual for people who commit crimes to be good providers."

Nottingham said Nacchio was the classic story of someone working their way to the top, except for the one flaw of greed.

"If it is perceived that there is one law for the rich and one law for everybody else, the law will ultimately fall in disrespect," Nottingham said, quoting from "A Man for All Seasons," a play based on Sir Thomas More's refusal to grant King Henry VIII a divorce. "The law does not care that you are wealthy, or were wealthy. The law does not care about your station in life."

Nacchio's lead attorney, Herbert Stern, argued that Nacchio only netted $28 million on the stock sales, not $52 million, because of commissions and taxes, which have already been paid.

Stern argued the $28 million figure not just for the value of the forfeiture but also because the amount would be a factor in determining the length of Nacchio's prison sentence.

Nottingham agreed that Nacchio didn't pocket the full $52 million, but that it wouldn't make any difference in the length of his prison sentence.

Stern pointed out that Nacchio didn't profit as much as he could have, that he followed his advisors and hung on to some of the stock as it began to decline. "He rode the stock to the ground" and absorbed losses with the investors.

"He is a good man, a kind man," Stern said. "To impose the highest possible punishment would be to pile on in an inappropriate way."

After the morning recess, prosecutor Colleen Conry told Notthingham that Nacchio's charity giving was merely typical of many CEOs.

As the court discussed the prison term, Stern pleaded that Nacchio is needed at home in New Jersey to care for an emotionally fragile son, who once tried to commit suicide while Nacchio worked in Colorado.

"The boy has been ill...You know (Joe) took this job with reservation" in part because he would be able to spend three days a week at home in New Jersey, Stern said, adding that Qwest had agreed to pay Nacchio's weekly travel expenses.

"You know there came a time when the situation erupted and he wanted to resign," when his son tried to commit suicide, said Stern, adding that Nacchio could have sold his stock then and walked away, but he stayed on.

"That logic cannot carry the day in this case," Nottingham told Stern. "He will not receive some sort of probation in this case where he can do these things the way he did in the past."

It was then that Nacchio pulled out a white handkerchief and began dabbing his eyes. His wife also wiped tears from her eyes and listened intently. Son Michael remained stoic, occasionally glancing across at the media.

Prosecutor Conry pointed out that the son, David Nacchio, has many positive aspects to his life, including a loving mother and brother, a fabulous doctor and all the financial support he would ever need.

Prosecutor Cliff Stricklin argued for a full prison sentence of 87 months, the maximum allowed under the circumstances.

"If there is anger in the (business) community, it is because people looked to (Nacchio) for the truth and didn't get it," Stricklin said. "He set the message for that company. People looked to him for that message. Joe Nacchio was Qwest."

Nacchio was Qwest's chief executive from 1997 to June, 2002. He was convicted in April on 19 counts of illegal insider trading for sales of Qwest stock in April and May 2001.

Prosecutors had recommended that he serve seven years, three months in prison, pay $19 million in fines and forfeit the $52 million in gross proceeds from the illegal stock sales.

Defense attorneys asked for leniency and suggested that Nacchio should not be required to forfeit more than $1.8 million.

The courtroom was packed, including some former workers and retirees of Qwest and its predecessor companies, U.S. West and Mountain Bell.

"You have to be present ... I hope to see justice," said Jerry Bennett, who worked 31 years at U.S. West before retiring in 1999.

Prosecutors showed that Nacchio had material, nonpublic information showing that Qwest was struggling when he made the illegal trades. He was acquitted on 23 other counts.

Bennett said she lost a "medium" amount of money in the crash that followed.

Nacchio arrived at federal court for his sentencing at 8:30 a.m., greeting members of the media and onlookers, some of whom showed up at the entrance at 2 a.m. in order to get a first-come seat in the courtroom.

"It's a way to get closure on this, hopefully," said John, a Qwest employee who refused to give his last name. "I'm a long-time employee. I lost $100,000."

Curtis Kennedy, an attorney for the Association of US West Retirees, was first in line to get into the courthouse this morning and soon was joined by a dozen others.

"Bad Karma will always come back and bite you," said Kennedy. "He's wrecked more lives than you can imagine. And I see that because they came into my office like an emergency room. He cut more people to make his numbers. It was whimsical."

Other observers agreed. "Judgment day is here," said Mimi Hull, president of the Association of US West Retirees. "Happy as a clam."

Said US West retiree Hazel Floyd: "I'm happy today is here and we get to partially end this."

Nacchio, 58, made more than $250 million in stock sales, bonuses and salary during his tenure at Qwest from 1997 to June 2002. The brash Brooklyn native oversaw the company's remarkable growth, spurred largely by its takeover of US West in 2000, and near collapse into bankruptcy in 2002.

Nacchio's case capped the federal government's criminal investigation of Qwest's former executives, which began in 2002 amid questions about the company's accounting of one-time sales of capacity on its fiber-optic network. Qwest later restated $2.5 billion in revenue booked from 2000 to 2002.

A number of Nacchio's former underlings reached plea deals with the government and testified against their former boss at trial. Nacchio is the only former Qwest executive to have been convicted of a crime connected to the accounting scandal.

Instead of charging Nacchio with falsely booking revenue to meet financial targets, prosecutors zeroed in on his efforts to keep under wraps internal concerns about Qwest's deteriorating condition while unloading millions of dollars in company stock.

He was indicted in December 2005 on 42 counts of illegal insider trading connected to his sale of $100 million in Qwest stock from January to May 2001.

Jurors acquitted him on the first 23 counts, but found him guilty on 19 counts connected to stock sales made in April and May, Those sales came after he failed to disclose Qwest's financial problems in a first-quarter earnings call with analysts and investors even though he had received months of warnings from his top lieutenants.

Nacchio's case also concluded the government's crackdown on the corporate fraud that rocked Wall Street earlier this decade. He was the last to stand trial among a group of high-ranking executives Enron's Jeff Skilling and WorldCom's Bernie Ebbers, among them - who enriched themselves while their companies crumbled.

Denver-based Qwest employs 38,000 people, including about 9,000 in Colorado.

Denver Post Business Columnist Al Lewis contributed to this report.

Staff writer Andy Vuong can be reached at 303-954-1209 or avuong@denverpost.com.

http://www.denverpost.com/ci_6478949