AUSWR
The Association of U S West Retirees
 

 

 

Nacchio had weak legal hand, and soon folded
By Rocky Mountain News Editorial
Friday, July 27, 2007


Former Qwest CEO Joe Nacchio held a weak legal hand going into today’s sentencing hearing, and it soon folded before common sense and federal sentencing rules.  Nacchio’s attorneys had asked U.S. District Judge Edward Nottingham to order him to forfeit no more than $1.8 million from his 19 illegal stock sales, even though they grossed $52 million.  In his first big ruling of the day, Nottingham ordered the former captain of Qwest to forfeit every dime of the boodle he skimmed from insider trading.

If the trades were wrong, then their entire value was an illicit benefit that should be given up — even if some of it had of course been devoured by transaction costs and taxes.

And so it went, with Team Nacchio’s efforts to minimize his fine and time in prison being rebuffed in turn by the no-nonsense Nottingham.

We take no pleasure in seeing Nacchio saddled with a six-year sentence in a federal prison system that these days is far from the old stereotype of Club Fed.  To the contrary.  We admire the attitude of Nelson Phelps, executive director of the Association of U S West Retirees, who has every reason to gloat but won’t.  He refused to attend Friday’s hearing because, he said, he has "a philosophy of non-vindictiveness. ... the last thing I need to do is go down to the courthouse and smile at a guy who has been taken down."

But Phelps clearly believes, as do we, that Nacchio must pay for his crimes.  And although six years is undeniably tough, it sends a siren warning to any other CEO inclined to mislead investors and the public about the state of his company while profiting from their ignorance.

If the Nacchio case amounted to nothing more than a corporate chief putting the best possible spin on his firm’s prospects in a forecast or two that turned out to be wildly wrong, his conviction and sentence would indeed be travesties.  The history of business may be littered with the ashes of dashed dreams, but it is also bursting with the improbable triumphs of visionaries whose confidence seemed utterly wacky to their contemporaries.

But Nacchio, we should remember, was not merely an optimist whose plans went south.  Not only did he rave about the company’s future at a time when its prospects were increasingly precarious, he also authorized the use of one-time transactions to pad the company’s books — and he did all of this while quietly selling vast amounts of stock to enrich himself.

As federal prosecutor Colleen Conry said in her closing argument earlier this year, "This is a case about choices" — bad choices, it so happens, whose bill has just come due.

http://www.rockymountainnews.com/drmn/local/article/0,1299,DRMN_15_5647916,00.html