DENVER—A civil fraud lawsuit against five former Qwest Communications executives, including one-time chief executive Joe Nacchio, likely won’t go to trial until 2009 based on a witness interview schedule released Friday.
U.S. Magistrate Judge Craig B. Shaffer set a series of deadlines for completing witness depositions and other tasks, concluding with a Jan. 9, 2009, motions deadline. He will set additional deadlines after that date for expert witness depositions and other matters. No trial date has been set.
The scheduling order was handed down one week before Nacchio is scheduled to be sentenced on 19 counts of insider trading for $52 million illegal stock transactions in 2001.
Federal regulators and the five defendants have identified 201 people they want to interview about the allegations, which span a four-year period encompassing a multibillion dollar accounting scandal at Qwest.
Of the total, Nacchio listed 82 he alone wants to question, including members of the Qwest board of directors and its audit committee at the time; people associated with classified business Qwest did with the government and customers.
Excluding those, attorneys for the Securities and Exchange Commission and the defendants estimated it will take them until Dec. 31, 2008, to complete 117 depositions, which amounts to six interviews per month, Shaffer said.
SEC attorneys earlier sought to limit the number of depositions sought by Nacchio alone, saying it was too many and the agency lacked the staff in Denver to handle them. Shaffer told them to “muster the resources necessary” to ensure Nacchio’s right to defend himself.
The SEC has alleged the one-time executives conspired to commit financial fraud between April 1999 and March 2002 at Qwest Communications International Inc., the Denver-based telecommunications company.
The fraud paved the way for Qwest to improperly report approximately $3 billion in revenue that helped seal its 2000 acquisition of former Baby Bell U S West. The phone company later restated $2.2 billion in revenue.
The SEC wants repayment and civil penalties, with amounts to be determined at trial.
In April, a federal jury convicted Nacchio of 19 insider trading counts for stock sales that occurred in April and May 2001 when Nacchio knew the company was at financial risk but he didn’t tell investors.
The former chief executive officer faces up to 10 years in prison and a $1 million fine on each count, although prosecutors have recommended a maximum of seven years and three months in prison and a maximum $19 million fine.
Nacchio’s attorneys want an unspecified lesser sentence because of the effect a lengthy prison term would have on the health of two of Nacchio’s relatives.
The SEC case mirrors many of the issues that arose during Nacchio’s criminal trial, charging the five men with concealing the amount of money from one-time sales of network capacity that was used to meet revenue targets.
Nacchio has said he knew Qwest could be in line for lucrative business contracts from clandestine government agencies but the details remain secret under a federal law restricting public release of classified information.
That strategy was mentioned by Nacchio’s defense attorneys but was not used during the criminal trial.
The secret information, governed by the Classified Information Procedures Act, has thrown a twist into the civil case. The law requires anyone who views such information to have a Justice Department security clearance.
Former Qwest accountant James Kozlowski has spent two months trying to find out if he and his attorney need clearances to view the documents for his defense in the civil case, but the Justice Department’s position is the law applies only in criminal cases, Shaffer said.
The judge ordered Nacchio to contact the necessary government agencies about the matter before the judge makes a decision on the next step.
Qwest paid $250 million to settle SEC charges of fraud in a deal that did not cover individuals. Qwest did not admit any wrongdoing in the settlement.
In addition to Nacchio and Kozlowski, the remaining defendants include former Qwest President Afshin Mohebbi; former Chief Financial Officer Robert Woodruff; and former Qwest accountant Frank T. Noyes.
Former CFO Robin Szeliga and former Qwest executive Gregory Casey have reached separate settlements with the SEC.
