DENVER-
Former Qwest Communications chief executive Joe Nacchio made a choice to withhold from investors critical information about the company while he illegally dumped $101 million of stock in early 2001, a federal prosecutor told jurors Tuesday. Nacchio’s attorney denied it and asked the jury to acquit his client.
Assistant U.S. Attorney Colleen Conry and defense attorney Herbert Stern pounded home their cases in Nacchio’s insider trading trial as a courtroom packed with news reporters and spectators watched.
Although managers warned Nacchio they believed Qwest’s 2001 financial targets were unrealistic, he kept that information within the company, exercised his options and sold millions of Qwest shares, Conry said.
“He puts his foot to the accelerator and dumps stock like he’s never dumped it before,” Conry said.
If he had withheld the information without selling shares, it would have been legal, she said. “This is a case about choice,” she said. “If you don’t tell, you can’t sell.”
Conry took jurors from Qwest’s merger with U S West Inc. in June 2000 through the spring of 2001, recalling the testimony of executives who warned Nacchio the company faced serious problems meeting 2001 financial targets without relying heavily on one-time sales.
Nacchio, however, did not change those financial projections until the fall of 2001, long after he completed the stock sales, she said.
“What would drive him to do something like this? There are 100 million reasons that drove him to do what he did. He knew he had to get out in the first two quarters because he knew the house of cards he’d built was about to come crashing down,” Conry declared.
Stern reminded jurors that Nacchio believed in the company’s prospects and wanted to push his business managers to exceed growth targets. He also emphasized that Nacchio needed to exercise stock options before they expired and had asked the board.
When he set the financial targets for 2000 and 2001, Nacchio relied on projections from two investment banking companies which conducted studies of the new company, he said, calling them reasonable and appropriate.
“Look, maybe his business projections didn’t come true,” Stern said. “And what he said to shareholders and the Street was the truth.”
Facing the jury, he said, “In the name of justice, acquit Joseph Nacchio.”
Stern was to continue his argument Wednesday after U.S. District Judge Edward Nottingham sent jurors home for the day.
Each of the 42 insider trading counts against Nacchio carries a penalty of up to 10 years in prison and a $1 million fine.
Before the trial, defense attorneys said Nacchio alone among company executives knew about lucrative government contracts that Qwest could win. However, none of that evidence was introduced during the defense’s case, and it was only mentioned in passing by prosecution witnesses.
In court filings made public Tuesday, defense attorneys renewed their objection to the exclusion of classified testimony. The sealed motion argued that the exclusion violated Nacchio’s right to present a defense. Prosecutors responded with a brief, also filed under seal.
The classified information that Nacchio has cited in the case is protected from public view by federal law. People must receive a security clearance to view the documents in secure facilities. In this case, the titles of the motions are public but the contents of the briefs are withheld from public view.
Nacchio has contended that at a time when managers were warning that Qwest faced financial risk, he alone knew the telecommunications company could win lucrative contracts from clandestine government agencies.
Earlier Tuesday, prosecutors called financial analyst David Weinstein to bolster their claim that Nacchio backdated a document after learning of worsening finances at Qwest Communications International Inc.
Government attorneys have said the document, which Nacchio signed to commit to selling shares, was created Dec. 13, 2000, although it was dated Nov. 3, 2000. Defense attorneys deny the backdating allegation.
Nacchio’s criminal case stems from a years-long government investigation into an accounting scandal at Qwest, a Denver-based primary telephone service provider in 14 mostly Western states.
Federal regulators have said Qwest falsely reported fiber-optic capacity sales as recurring instead of one-time revenue between April 1999 and March 2002. The practice allowed Qwest to improperly report about $3 billion in revenue, which helped pave the way for its acquisition of U S West, regulators have alleged. Qwest later restated about $2.2 billion in revenue.
A civil fraud suit is still pending against Nacchio and other former Qwest executives, alleging they orchestrated a financial fraud that led to the scandal.
