As in other corporate mega-scandals such as Enron Corp. and WorldCom Inc., federal prosecutors examining wrongdoing at Qwest Communications saved the biggest fish for last.
The 42-count indictment against former chief executive officer Joseph Nacchio was released Tuesday, capping a three-year investigation of alleged financial corruption that cost Qwest investors billions of dollars. A jury will determine whether Nacchio is guilty, unless he wants to confess his violations and put the whole sordid mess behind.
At least six other former Qwest executives had been charged earlier, including former chief financial officer Robin Szeliga, who pleaded guilty in July to insider trading and agreed to cooperate, and former senior vice president Marc Weisberg, going on trial next month on wire fraud and money-laundering charges. Former Qwest president Afshin Mohebi has been granted immunity and is expected to testify.
According to the seven-page indictment, Nacchio sold Qwest shares for a total of $100.8 million in 42 transactions between January and May 2001, despite a company policy against selling shares while in possession of non-public information and being advised that insider trading was a crime.
The indictment says that Nacchio was “specifically and repeatedly warned” about Qwest’s financial risks and that the company’s revenues weren’t growing enough to reach financial targets and close a widening gap between publicly stated financial goals and actual performance.
Qwest, a fiber-optic network, was a bright star of the telecom boom that acquired US West for $45 billion in 2000. But its fortunes sagged because the industry had built too much capacity. Smoke-and-mirrors transactions, such as swapping fiber-optic capacity with a competitor and booking the deals inflated revenues by about $3 billion. (Qwest later restated results for 2000 and 2001, trimming revenues by about $2.2 billion.)
Nacchio was forced out in 2002 and a representative says, “After many months of intense media attention and speculation, Joe Nacchio is looking forward to vindicating his name in court.”
Qwest stock, after peaking at $64.50 in March 2000, plunged to $1.11 a share in August 2002, a loss of about $100 billion in market value. This wiped out many US West retirees, whose nest eggs consisted of Qwest stock received in exchange for US West stock (worth about $86 a share) when the merger was completed. Nacchio, who commuted from the East Coast to Denver while running Qwest, took $176 million in 1999-2001 profits back to New Jersey, leaving pensioners and investors high and dry. They are well served by the attention prosecutors have brought to the Qwest cases, up to and including the $100 million man.
