DENVER-
Quarter after quarter, Joe Nacchio confirmed to analysts that Qwest Communications was growing but never mentioned the expansion came largely through one-time transactions, a former company executive testified Wednesday at the former CEO’s insider trading trial.
Lee Wolfe, then a Qwest senior vice president of investor relations, also acknowledged he sold 20,000 Qwest shares from January through April in 2001 for a net gain of $646,000 about the same time that Nacchio is accused of illegally selling $101 million in stock based on internal warnings that the company was at financial risk.
Wolfe previously sold 25,000 shares in 2000 for a net gain of about $1 million. He said he didn’t consult an attorney at the time of the sales but hired one after the government began investigating an accounting scandal that forced the Denver-based company to restate $2.2 billion in revenue.
Wolfe said he has a letter from the government that essentially would grant him immunity if he cooperates with federal investigators.
Wolfe was the first witness at Nacchio’s trial and is scheduled to return to the stand Thursday.
Prosecutors contend Nacchio dumped the stock in the first five months of 2001 because he knew that Qwest Communications International Inc., a Denver-based telephone service provider in 14 mostly Western states, could be in financial trouble.
Guided by prosecutor Leo Wise, Wolfe took jurors through a period from just after Qwest acquired former Baby Bell U S West in 2000 through August and September 2001 when Qwest first said publicly that it had used one-time transactions to meet financial targets.
He detailed conversations Nacchio had with analysts and investors, reassuring them that Qwest would generate 15 percent to 17 percent revenue growth within five years after the 2000 merger.
About the same time, others in the industry had lowered forecasts because of economic worries and the increased competition facing network owners. Wolfe said.
“I expressed some concern to Mr. Nacchio not to be as aggressive in the targets,” Wolfe testified. “It was apparent to me it was not sustainable.”
Wolfe said he believed the revenue increases at Qwest were driven by one-time transactions. “The problem with one-timers is you have to repeat them each quarter and actually do a little more (in revenue),” he said.
Nacchio, however, made the decision not to discuss the transactions, he said.
In December 2000, Nacchio reaffirmed the company’s growth projections during a conference call with analysts, Wolfe said. Shares of Qwest Communications International Inc. rose $5 on the day of the call and gained an additional $5 a share within five trading days.
Nacchio watched closely as Wolfe explained company documents posted on video screens for jurors and spectators. At times, he consulted with his attorneys while his wife and other family and friends watched from a bench just behind him.
On cross-examination, defense attorney John Richilano pointed out several meetings where Qwest executives other than Nacchio had met or conferred with investors and analysts.
He also questioned Wolfe about the company’s forward-looking statements, which warn investors of potential risks and are standard in Securities and Exchange Commission filings.
Nacchio, 57, is accused of 42 counts of insider trading for improperly selling stock while privy to internal information that showed Qwest was at financial risk. Each count carries a penalty of up to 10 years in prison and a $1 million fine.
Qwest’s stock price plummeted from more than $60 a share in 2000 to just $2 a share in 2002, and its near-collapse left thousands of pensioners in financial trouble.
The defense said in a court filing that it has added Richard Clarke, a former White House anti-terrorism chief, to its witness list. Clarke, who also served as a special adviser to President Bush on cybersecurity issues, had spoken at least once to the National Security Telecommunications Advisory Committee, which Nacchio headed when he resigned from Qwest in 2002.
An earlier defense filing that included notes of a federal prosecutor’s interview of a former Qwest manager said Nacchio and about 15 others met with Clarke and then-National Security Adviser Condoleezza Rice in the White House situation room in March 2001. Clarke asked whether it would be possible to create a government communications network separate from the public network, and Nacchio said “not only was it possible, but he had already done it. He went on to describe how he would do it and there was debate on the subject. Others argued it would be prohibitively and outrageously expensive,” the filing said.
The defense contends Nacchio was aware of secret, potentially lucrative government contracts that Qwest could win and the money would help the company’s financial picture.
