DENVER-
Shorter—and simpler—seems to be better for the government when it comes to winning convictions in white-collar crime cases.
Thursday’s conviction of former Qwest Communications CEO Joseph Nacchio on insider trading charges was the latest example of federal prosecutors successfully using a less-complicated strategy: executives lied to investors and profited from it.
It’s likely investors will see the government pursue more insider trading cases proven through evidence than accounting cases that focus on the judgment of executives, said Peter Henning, a Wayne State University professor specializing in white-collar crime.
“Insider trading charges are a way to bring what is in effect an accounting case without getting into the accounting minutia,” he said. “You’re going to see them stay away from judgment calls.”
Nacchio is the latest corporate executive to be prosecuted in accounting and fraud scandals starting in the late 1990s and sparking investor outrage. The case is an example of how the government is narrowing its focus, said attorney Michael Levy, a Washington, D.C.-based former federal prosecutor who specializes in white-collar crime.
An early federal prosecution, involving the head of Tyco International, was a wide-ranging complex conspiracy case that left jurors confused, Levy said.
From Tyco to cases involving leaders of WorldCom, Enron and now Qwest, Levy said the government has simplified its theories. Nacchio, for example, was charged with insider trading—but not in the accounting scandal that nearly brought down Qwest Communications International Inc.
“The government clearly has developed an approach to these cases that’s gotten progressively more efficient and targeted,” Levy said. “They’ve clearly compressed their theory so it’s much more easily digestible.”
In 2005, former Tyco International chief executive L. Dennis Kozlowski and finance chief Mark H. Swartz were convicted of securities fraud and other charges after a four-month trial. It was the second trial for them; a mistrial was declared the previous year after a nearly six-month trial.
Martha Stewart was convicted in a six-week trial in 2004 of obstructing justice and lying to the government in a $228,000 ImClone stock sale.
Former Cendant Corp. Chairman Walter Forbes was convicted of conspiracy to commit securities fraud and other charges in a scheme costing more than $3 billion. The conviction came in a third trial after two previous juries deadlocked.
In a six-week trial, one-time CEO Bernard Ebbers was convicted of orchestrating an $11 billion accounting scandal at WorldCom.
Jurors in Birmingham, Ala., spent five months listening to evidence before acquitting HealthSouth Corp. founder Richard Scrushy of charges related to a $2.7 billion earnings overstatement.
Houston jurors convicted former Enron Corp. chiefs Kenneth Lay and Jeffrey Skilling of conspiracy and securities and wire fraud in a 2006 trial that lasted nearly four months. A judge vacated the conviction against Lay after Lay died of a heart attack.
A one-time Wall Street darling, Nacchio was convicted of dumping $52 million in stock in 2001 while concealing from investors information that Qwest used one-time sales transactions to achieve revenue targets.
In a three-week trial, prosecutors hammered the concept that Nacchio lied to investors while selling stock as Qwest battled aggressive competition in a weakening economy. In her closing argument, prosecutor Colleen Conry quipped: “If you don’t tell, you can’t sell.”
Defense attorneys insisted Nacchio was optimistic about Qwest’s prospects and set higher internal financial projections to push executives into performing better. They said Nacchio wanted to resign in January 2001 because of a family crisis, an indication he wasn’t acting on inside information.
A jury deliberated six days before acquitting him on 23 counts and convicting him on 19 for transactions that occurred in April and May—after Denver-Qwest released its 2001 first-quarter results.
Nacchio, who did not testify, will appeal. His Denver-based attorneys did not return a call seeking comment on Friday.
The case grew out of a multibillion-dollar scandal that forced Qwest to restate $2.2 billion of revenue. Federal regulators have said Qwest falsely reported fiber-optic capacity sales as recurring instead of one-time revenue between April 1999 and March 2002, a practice that allowed it to improperly report about $3 billion in revenue.
Nacchio is to be sentenced July 27 by U.S. District Judge Edward Nottingham. Each count carries a sentence of up to 10 years in prison and a $1 million fine, but Nacchio likely will receive less prison time under federal sentencing guidelines, said Henning, who has closely monitored the Nacchio case.
He speculated Nacchio will receive a prison sentence of eight years to 10 years and a fine of $500,000 to $1 million.
Although judges are not required to follow the guidelines, Nottingham probably will stick close to them, Henning said. Nacchio also could be required to forfeit the $52 million in gross proceeds.
A civil fraud lawsuit is still pending against Nacchio, former Qwest President Afshin Mohbebbi and other one-time executives, alleging they orchestrated financial fraud that led to the scandal. The Securities and Exchange Commission is seeking repayment and civil penalties, with the amounts to be determined at trial.
