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Nacchio convicted of insider trading

Former Qwest Communications executive Joe Nacchio, center, flanked by his wife, Anne, and son, Michael, arrive at federal court with lawyers in Denver on Thursday. Nacchio was found guilty of insider trading. PHOTO: AP

Joe Nacchio, a former AT&T executive tapped to transform Qwest Communications into a major telecommunications competitor, was convicted of 19 of 42 insider trading charges after one-time top executives described his relentless drive to meet revenue projections without revealing financial risks.

A federal jury deliberated six days before concluding on Thursday on 19 counts that the former Qwest chief executive illegally sold US$52 million worth of stock in April and May of 2001, when he knew the company faced financial challenges and relied heavily on one-time sales to meet revenue targets. The jury acquitted him on the other 23 counts stemming from sales in January and February.

US District Judge Edward Nottingham set a July 27 sentencing date for Nacchio, who is free on US$2 million bail. Each count carries a potential penalty of 10 years in prison and a US$1 million fine. Nacchio also could be required to forfeit the US$52 million, although the exact amount will be determined by the judge at sentencing.

"`Convicted felon Joe Nacchio' has a very nice ring to it," said Troy Eid, the US attorney for Colorado.

Prosecutor Cliff Stricklin, who headed the government's team, said he planned to seek prison time for Nacchio.

"We certainly will appeal," defense attorney Herbert Stern said.

Nacchio, who still faces a civil fraud lawsuit, declined to comment. A smile sometimes crossed his face as he left the courthouse arm-in-arm with his wife. They walked away together on a busy downtown street.

The 12 jurors left the courthouse without commenting.

Nacchio, 57, was accused of selling US$101 million worth of stock in the first five months of 2001 based on inside information that Qwest faced financial risks. With the decision, the eight men and four women on the jury turned away Nacchio's claim that he believed in the company's future despite concerns voiced by business managers.

The criminal case stemmed from a years-long government investigation into an accounting scandal at Qwest Communications International Inc, a Denver-based primary telephone service provider in 14 mostly Western states.

Federal regulators have said Qwest falsely reported fiber-optic capacity sales as recurring instead of one-time revenue between April 1999 and March 2002. The practice allowed Qwest to improperly report about US$3 billion in revenue, which helped pave the way for its acquisition of former Baby Bell US West Inc, regulators have alleged. Qwest later restated about US$2.2 billion in revenue.

Jurors convicted Nacchio on counts involving trades he made after April 24, 2001. Those were the first trades that occurred after Qwest released its financial results for the first quarter but did not reveal how much of the revenue came from one-time sales.

"Insider trading is not a victimless crime. It's a crime about fairness," Stricklin said. "Many lost their hopes and dreams while others at Qwest took the easy way out."

Many former US West and Qwest employees and retirees lost savings as Qwest's share price fell precipitously starting in 2001. Some of them applauded the verdict.

Prosecutors wove a circumstantial case against Nacchio based on the testimony of those who worked closely with him -- a former company president, a one-time chief financial officer, an investor relations executive and business unit managers.

Most testified either under grants of immunity in exchange for cooperation or after pleading guilty to a crime, saying they repeatedly warned Nacchio that Qwest would not meet aggressive financial targets for 2001 without relying heavily on revenue from one-time sales that came from a waning market.

Despite their warnings, Nacchio refused to lower forecasts and did not tell the public how much one-time revenue was included in earnings, the witnesses said.
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