DENVER-
A former Quest Communications finance chief testified Monday that Joe Nacchio, the company’s CEO on trial for insider trading, put a top priority on meeting revenue targets despite concern from midlevel managers they might not meet the goals.
Robin Szeliga, a former chief financial officer who pleaded guilty to insider trading, said she met with Nacchio and her boss Robert Woodruff, then the CFO, in late December 2000 or early January 2001 to discuss concerns that had been 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.
The 57-year-old Nacchio is accused of selling $101 million worth of Qwest stock in 2001 after learning internal information that could put the Denver-based company 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 stock sales in the first five months of 2001. Each count carries a penalty of up to 10 years in prison and a $1 million fine.
Szeliga also testified that she received a memo on Sept. 5, 2001 that indicated 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.
Jurors peered closely at the forms on computer screens as Kamelia Oneth, a legal affairs director at Qwest when Nacchio was chief executive, explained how the forms were filed and detailed the company’s insider trading policy.
Prosecutors have lined up a number of former Qwest officials to testify against him.
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.
In white-collar crime cases, prosecutors often try to file charges against lower-level managers with the goal of gaining their cooperation against top executives, legal analysts say.
In the WorldCom case, Scott Sullivan, a former WorldCom chief financial officer, pleaded guilty to his role in an $11 billion accounting fraud that brought down the company. He testified against former CEO Bernard Ebbers, who was convicted of fraud, conspiracy and false regulatory filings.
At Enron Corp., former CFO Andy Fastow pleaded guilty to two counts of conspiracy and testified against Enron founder Kenneth Lay and former President Jeffrey Skilling, who were convicted of fraud, insider trading and other charges in the collapse of the Houston-based firm. Lay’s conviction was vacated after his death in Aspen last year.
In the Qwest case, Szeliga is serving probation after pleading guilty to one count of insider trading and is a key witness for the government.
Others include former investors relations executive Lee Wolfe, who testified last week. He admitted selling stock in the same time period as Nacchio but has a letter from the government essentially granting him immunity if he cooperates. Former President Afshin Mohebbi and former General Counsel Drake Tempest also are expected to testify.
