After pursuing a broad – and largely unsuccessful – prosecution against four midlevel Qwest executives in 2004, the U.S. Department of Justice appears to have put down its shotgun and picked up a high-powered rifle in its pursuit of former Qwest chief executive Joe Nacchio.
A bare-bones, eight-page indictment filed Tuesday charges Nacchio with just one crime – illegal insider trading. But it alleges he committed that crime 42 times.
To win a conviction that could put Nacchio behind bars for 10 years, prosecutors will have to prove to a jury that he committed the crime just once.
“They may have learned their lesson,” said former federal prosecutor William Mitchelson, based in Atlanta. “It seems pretty apparent that the government thought (insider trading) was their strongest case and rather than water it down with other charges, they decided to focus on it.”
Federal prosecutors zeroed in on 42 stock sales Nacchio made between Jan. 2, 2001, and May 29, 2001, totaling $100.8 million.
The dollar amount and number of trades identified in the indictment are unprecedented for a criminal insider-trading case, experts said.
“The amount of insider trading at issue certainly falls in the class of rarified air,” said former federal prosecutor Jacob Frenkel, based in Rockville, Md. “If there have been others, there have been very, very few.”
Typically, insider-trading cases involve just one stock transaction made based on one key piece of nonpublic information, said former Securities and Exchange Commission enforcement attorney Peter J. Henning, based in Detroit.
Though Tuesday’s indictment gave few clues about the government’s evidence, experts say it seems clear they have witnesses who can testify that Nacchio sold Qwest stock based on material information that was not available to the public.
The indictment states that Nacchio was “specifically and repeatedly warned” about nonpublic information that would keep Qwest from hitting financial targets, according to the indictment.
Mitchelson, who heads government investigations and compliance for Atlanta-based law firm Alston & Bird, said he believes that former Qwest chief financial officer Robin Szeliga will be the star witness.
“It’s pretty obvious from the time frame of the trades that Robin Szeliga’s testimony will be crucial to the case,” Mitchelson said.
Szeliga agreed to cooperate with the government and pleaded guilty in July to an insider- trading charge for stock sales she made in April 2001, which falls within the time frame of Nacchio’s alleged illegal trading.
Some experts said they were surprised by the lack of detail in Tuesday’s indictment beyond Nacchio’s stock trades.
“If they don’t have a smoking gun, then they’re really going out on a limb in bringing this prosecution,” said former federal prosecutor Anthony Accetta, based in Denver.
“Clearly, the government doesn’t want to confuse the jury with multiple facts in the indictment, but to not attribute what specific (information) they’re saying he knew for each trade is a little risky,” said Accetta, a former first assistant attorney general in Colorado.
Accetta said Nacchio’s lawyers are likely to file a motion to request that the government reveal what insider information prosecutors allege Nacchio knew when he made each of the 42 trades between January and May 2001.
Accetta said he would be surprised if a trial occurred within six months.
The first criminal prosecution by the government against four lower-level former Qwest executives resulted in acquittals for two defendants and plea bargains for two others. Jurors interviewed after the trial ended said they were overwhelmed by the allegations and evidence presented by prosecutors over the seven-week trial.
“They threw everything and the kitchen sink (at the defendants) hoping that something would stick,” said jury foreman George Gerstle in April 2004. “Some of the jurors resented that.”
Staff writer Andy Vuong can be reached at 303-820-1209 or avuong@denverpost.com.
