Former Qwest chief executive Joe Nacchio is expected to defend himself against 42 counts of illegal insider trading by using a variety of strategies aimed at undercutting the government’s case.
The indictment centers on the allegation that Nacchio sold $100.8 million worth of Qwest stock in early 2001 when he was concealing from the public his knowledge that the company was in deepening financial trouble.
According to legal experts, Nacchio’s defense team will claim that:
The information available to Qwest executives about the outlook for the company was the same information available to the public – and it didn’t necessarily point to a downturn.
“They’ll try to minimize the difference between what the public was being told and what they actually knew inside Qwest,” said Tony Leffert, a former federal prosecutor and lawyer with Robinson, Waters and O’Dorisio in Denver.
“The most important defense he’ll bring is that his trading was not motivated by this information because it wasn’t clear that Qwest was in significant trouble,” said Peter J. Henning, a law professor at Wayne State University in Detroit.
An economic downturn that hammered the telecom sector was impossible to predict and helped cause Qwest’s stock to plummet from more than $55 a share in mid-2000 to less than $2 a share in 2002.
Nacchio’s stock sales of $100.8 million during the period in question, January to May 2001, were part of an ongoing schedule of sales designed to diversify his holdings.
The government’s witnesses, including former Qwest president Afshin Mohebbi and former Qwest chief financial officer Robin Szeliga, lack credibility because they are cooperating with authorities.
“A lot is going to turn on whether those insiders are credible,” said former federal prosecutor William Mitchelson, based in Atlanta. “The defense will argue that the testimony of those insiders (was) bought.”
A wild-card strategy emerged within the past month after Nacchio hired former federal Judge Herbert Stern as his lead attorney. It involves Nacchio’s role on two federal advisory panels dealing with national-security issues while he was at Qwest, and the possibility of government contracts being awarded to his company.
Stern told a federal judge Tuesday that he had to apply for national-security clearance several weeks ago so he could talk to his client about specific “recurring and nonrecurring” revenue at Qwest.
“National-security requirements, that’s the reason for the secret,” Stern told Judge Edward Nottingham during the hearing. He said the federal Classified Information Protection Act might play a part in – possibly hindering – the defense’s strategy.
Nacchio served on two federal advisory panels dealing with national-security issues – the Network Reliability and Interoperability Council and the National Security Telecommunications Advisory Committee.
But Nacchio wasn’t nominated to serve on the second panel until July 2001 – after the illegal-insider-trading period cited in the government’s indictment.
Nacchio is also likely to say he made stock trades at scheduled times approved by the company’s board of directors, said John Coffee, Columbia University law professor and white-collar crime specialist.
From the time Nacchio joined the company in 1997 until mid- 2001, he sold close to $300 million worth of Qwest stock, mostly by exercising stock options. The sales often occurred during a two-week window after earnings announcements, per Qwest’s policy for insider trades.
Nacchio’s attorneys have said all his stock sales were legal and that the company’s disclosures were proper.
The defense will also seek specific information about each of the 42 alleged illegal insider stock sales that occurred.
Mitchelson said one challenge the defense will have is to show why Nacchio unloaded $100.8 million in Qwest stock in a relatively short period.
“He needs a very credible explanation for this volume of trade over a six-month period,” he said.
Staff writer Andy Vuong contributed to this report.
Staff writer Beth Potter can be reached at 303-820-1503 or bpotter@denverpost.com.
