DENVER-
Former Qwest CEO Joe Nacchio told managers of the telephone company’s key business units to focus on meeting internal business targets despite their concerns they would be unable to achieve the goals he set for them, a former company finance chief testified Monday.
In a separate development, Nacchio’s attorneys asked the judge presiding over his insider trading trial to declare a mistrial because of what they called “prejudicial” testimony from a former Qwest employee who described putting all of her investments into Qwest stock based on Nacchio’s promises of revenue growth.
Robin Szeliga, who joined Qwest in 1998 and became chief financial officer in April 2001, told jurors she attended several meetings where Nacchio put a top priority on meeting internal revenue targets, which were higher than those publicly released to investors.
Szeliga, who is serving two years’ probation after pleading guilty to illegally selling stock in 2001, said she met with Nacchio and her boss, then-CFO Robert Woodruff, in late December 2000 or early January 2001 to discuss concerns raised by executives of Qwest’s business units.
“I explained to Mr. Woodruff and Mr. Nacchio that business units were still concerned, very concerned, that they could not meet the targets assigned to them,” she said.
Szeliga said Nacchio told her “he would make the decisions, not me, as to whether the business units had valid concerns.” The meeting occurred about a month before the first trades that Nacchio is accused of improperly making.
Szeliga also explained her guilty plea in the criminal case and said she had reached a settlement in a civil fraud lawsuit accusing her, Nacchio and other former Qwest executives of orchestrating a financial fraud in connection with an accounting scandal that forced the Denver-based company to restate billions of dollars in revenue.
Without admitting or denying guilt, Szeliga said she agreed to pay $577,000 in fines, restitution and repayment of bonuses she received as a Qwest Communications International Inc. employee.
She also is banned for life from being an officer or director of a public company. Szeliga said the Securities and Exchange Commission agreed to the settlement last week.
In the criminal case, Szeliga said, “I sold shares when I had inside information that was inappropriate, so I pled guilty to a felony.”
On cross-examination, she acknowledged that she sold two blocks of stock during her tenure at Qwest, 10,000 shares in 2000 and 10,000 shares in 2001. It was the latter transaction that was the subject of insider trading. It generated $125,000, which she planned to use to remodel her kitchen.
Szeliga learned the Justice Department had targeted her in its criminal investigation in 2005 and agreed to cooperate with investigators as part of her plea agreement, including a case that was forming against Nacchio.
The 57-year-old Nacchio is accused of selling $101 million worth of Qwest stock in 2001 after learning internal information that the Denver-based company was at financial risk. Soon after, Qwest became mired in an accounting scandal and eventually was forced to restate $2.2 billion in revenue.
Nacchio, who resigned from Qwest under pressure in 2002, is charged with 42 counts of insider trading stemming from the stock sales. Each count carries a penalty of up to 10 years in prison and a $1 million fine.
Nacchio’s attorneys filed a motion Monday seeking a mistrial, contending a former Qwest employee’s testimony about her company investments was “irrelevant and prejudicial.”
Sally Anderson, a former regional training manager for Qwest and merger partner U S West, told jurors last week that she put all of her savings into Qwest Communications International Inc. stock after receiving an e-mail from Nacchio in the fall of 2000 in which he said the company was raising revenue targets.
“It means we were going to make more money and be more profitable,” Anderson said of the e-mail. “I’m not sure we would be doing that if it wasn’t a good business decision.”
U.S. District Judge Edward Nottingham had told prosecutors to limit Anderson’s testimony to that of what a typical investor would find important and to statements made by Nacchio to employees.
In their motion, defense attorneys contended that Anderson’s statements went beyond the limits when she explained how she had divided her holdings. Prosecutor Cliff Stricklin told Nottingham Monday that government lawyers would file a response within a couple of days.
Szeliga testified that she received a memo on Sept. 5, 2001 indicating that business unit managers believed they would fall $1.5 million short of meeting their 2001 budget revenue estimate of $22 billion.
She said that in the 2001 budget they had expected $2.6 to $2.7 billion growth.
Prosecutors played several video clips for the jury showing Nacchio putting a high priority on meeting revenue target numbers. They also questioned a former Qwest Communications legal director and showed the jury complex federal forms outlining stock sales.
Qwest Communications International Inc. is a telephone service provider in 14 mostly Western states.
The government’s case is grounded in 2000 and 2001, when Qwest acquired former Baby Bell U S West Inc.
Federal regulators say Qwest falsely reported sales of capacity on fiber optic cables as recurring instead of one-time revenue between April 1999 and March 2002. That allowed the company to improperly report approximately $3 billion in revenue, which helped pave the way for its 2000 acquisition of U S West Inc., the Securities and Exchange Commission has charged.
