It started to look as if Joe Nacchio would be acquitted of insider-trading charges Thursday as the judge read 23 consecutive not-guilty verdicts.
But those who knew the case best – the prosecutors who tried it – were waiting for the verdict on count 24.
They knew that was the meat of their case.
“Count 24 was a big count for us, an important date,” lead prosecutor Cliff Stricklin told reporters outside the courthouse.
The count was based on a $13.6 million stock sale Nacchio made on April 26, 2001. It was the biggest single trade he made during the period of the indictment, and the first in a string of trades made in late April and May totaling $52 million.
Prosecutors knew that if the jury bought their argument that Nacchio had inside information when he sold on April 26, then guilty verdicts were almost a sure bet for the remaining 18 counts. Nacchio sold another $38 million from April 27 to May 29.
Nacchio was found guilty on charges 24 to 42 of the 42-count indictment. Each count was associated with sales on a particular day.
The April time frame was critical for the prosecution. That’s when Nacchio received the most dire warnings from his subordinates and also when he made several public pronouncements supporting Qwest’s earnings targets for investors.
Nacchio confirmed Qwest’s financial targets on April 24, 2001, telling analysts he saw “nothing to dissuade us” from the aggressive guidance, prosecutors said.
Two days later, Nacchio began a four-day selling spree in which he dumped 960,000 Qwest shares for $34 million.
“I draw your attention to the April sales,” prosecutor Colleen Conry told jurors during her closing argument, “because of the amount of information he has at this time, because of the misleading impression that he’s ‘seen nothing to dissuade us.”‘
On Thursday, Conry said Nacchio’s trades beginning in April appeared to be more convincing to jurors because dire warnings from executives, including former Qwest president Afshin Mohebbi, were being realized.
Qwest’s problems at that time were an “affirmation of those warnings. … The Mohebbi warnings were coming true,” she said.
Mohebbi had told Nacchio in December 2000 that Qwest’s financial targets were a “huge stretch.” The company would have trouble reaching them without a dramatic increase in its sales of traditional offerings such as phone service, he said.
“We need our recurring business to literally take off by April/May time frame or the amount of one-time business required to fill the gap will just be too large to deal with. Our track record in this area is not good, as you know,” Mohebbi wrote to Nacchio in December 2000.
Prosecutors also played a video of a Qwest sales conference in Las Vegas in January 2001. Nacchio told the sales force that the company needed to come out of the gate strong with recurring sales during the first few months of 2001.
Qwest was increasingly reliant on one-time sales of capacity on its fiber-optic network, revenue that business-unit heads warned would dry up by the third quarter because of declining demand. Former wholesale business chief Greg Casey testified that he clearly informed Nacchio in late 2000 and early 2001 that his unit’s revenue targets were too high.
Key government evidence was documents from an April 9, 2001, briefing attended by Nacchio. Robin Szeliga, then Qwest’s chief financial officer, and others warned that the gap between the 2001 financial targets and the internal revenue projections had grown to $329 million, or 30 percent higher than planned.
The jury was presented with a document from the briefing in which Nacchio was told, “The shift (to recurring revenues) is not occurring.”
Two stock analysts testified that Qwest did not disclose its reliance on the one-time sales until August, long after Nacchio sold his shares. In September 2001, Qwest lowered its earnings targets for the year to $20.5 billion from $21.3 billion.
Stricklin said Thursday that jurors may not have felt the evidence was strong enough as to what inside information Nacchio possessed prior to April, but they decided “certainly at some point Joe Nacchio knew what the investors didn’t and chose to profit on it.”
Staff writer Greg Griffin can be reached at 303-954-1241 or ggriffin@denverpost.com.
