DENVER—Prosecutors argued Friday that former Qwest CEO Joe Nacchio’s insider-trading conviction should be upheld, rejecting his arguments that a judge committed key errors and the government based its case on insufficient evidence.
“A reasonable jury could conclude that: Nacchio dumped his stock on the basis of the dire reports he had just received; the information was material; and Nacchio knew as much,” Assistant U.S. Attorney Stephan Oestreicher Jr. wrote in an 83-page brief attacking each of Nacchio’s claims.
Nacchio was convicted of 19 counts of insider trading in April after a jury concluded he sold $52 million worth of stock when he knew Qwest Communications International Inc. was at financial risk, but didn’t tell investors. The jury acquitted Nacchio of 23 counts.
Nacchio argued in his appeal that U.S. District Judge Edward Nottingham improperly denied him the chance to present evidence about secret business the Denver-based telecommunications company did with the government.
Nacchio also claimed Nottingham improperly refused to allow testimony from his expert witness and gave improper instructions to the jury.
Oestreicher countered Nacchio knew Qwest was relying heavily on one-time sales and that his business unit managers were worried about meeting revenue targets, but that Nacchio lied to investors about the company’s situation.
“These were not vague ‘forecasts.’ They were hard facts about the present quality and sustainability of Qwest’s revenue—facts that Nacchio and his executives agreed would, if disclosed, surprise investors and cause Qwest’s stock price to plummet,” he wrote.
Before his trial, Nacchio said he was more optimistic about Qwest’s future than his managers because he knew Qwest may have been in line to receive key government contracts worth millions, but Qwest lost the business because he refused an unspecified government request.
Prosecutors pointed out that Qwest was part of a consortium awarded a key government contract.
Nottingham ruled that the defense strategy involving the classified information was irrelevant and the evidence was not introduced at trial.
Prosecutors said Friday Nacchio was not prejudiced by any of Nottingham’s rulings.
Nacchio remains free on bail pending his appeal of the conviction and six-year prison sentence. The 10th U.S. Circuit Court of Appeals is scheduled to hear oral arguments on Dec. 18.
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.
The Securities and Exchange Commission’s civil fraud lawsuit is still pending against Nacchio and four other one-time Qwest executives, alleging they orchestrated financial fraud that led to the scandal. The SEC is seeking repayment and civil penalties, with the amounts to be determined at trial.
