US: Ex-Chief of Qwest Is Indicted
Joseph Nacchio, the former chief executive of Qwest Communications during its multibillion-dollar accounting scandal, was indicted Tuesday on 42 counts of insider trading accusing him of illegally selling off more than $100 million in stock.
The indictment includes the first criminal charges against Nacchio in the government's nearly four-year-old investigation into accounting practices at Qwest Communications International Inc., the Denver-based primary telephone service provider in 14 mostly Western states.
Nacchio, 56, was in custody and his initial court appearance was expected later Tuesday, said Jeff Dorschner, a prosecution spokesman. Nacchio's attorneys said he would plead not guilty ''with perfect confidence in his exoneration.''
''After many months of intense media attention and speculation, Joe Nacchio looks forward to vindicating his name in court,'' the attorneys said.
The indictment accuses Nacchio of selling $101 million worth of Qwest stock in the first five months of 2001 when he allegedly had insider information about the company. The sales took place in 42 transactions ranging from $191,000 to $13.6 million each, the indictment says.
The indictment accuses Nacchio of ''a manipulative and deceptive'' scheme to commit fraud and said he was ''specifically and repeatedly warned'' about the financial risks facing his company just five months before the stock trades in question.
Each count carries a penalty of up to 10 years in prison and a $1 million fine.
''Corporate executives are prohibited from enriching themselves while the public remains in the dark about the true financial condition of their companies,'' U.S. Attorney Bill Leone said.
Nacchio, who arrived in Denver from his home in New Jersey late Monday, already faces civil charges filed by the Securities and Exchange Commission and shareholder lawsuits.
The government has alleged in both civil and criminal cases that Qwest and some of its former executives participated in a massive financial fraud between April 1999 and March 2002 by falsely reporting sales or trades of capacity on its fiber-optic cables as recurring revenue.
The fraud allowed Qwest to improperly report approximately $3 billion in revenue that eased its 2000 merger with U S West Inc., the government has said. Qwest later restated earnings from 2000 and 2001 to erase about $2.2 billion in revenue.
The indictment said Nacchio was well aware of Qwest's ''extremely aggressive'' financial targets and that to meet those targets in 2001 the company would have to significantly boost its flagging ''recurring revenue business.'' It said he also knew there wouldn't be enough revenue from other sources to ''close the gap'' between Qwest's publicly stated goals and its actual performance.
Federal prosecutors have lined up some of Nacchio's former colleagues to testify, including former Chief Financial Officer Robin Szeliga, who pleaded guilty to insider trading, and former sales executive Gregory Casey, who has settled SEC charges against him. Both agreed to cooperate.
In addition, former Qwest President Afshin Mohebbi has been granted immunity and is expected to testify. Mohebbi's attorney, Paul Grand, has said Mohebbi will not face criminal charges but declined further comment.
Szeliga pleaded guilty to a single count of insider trading stemming from a stock sale in April 2001 and reached a plea bargain in the SEC case. Two former midlevel managers also have agreed to cooperate as part of plea agreements in related criminal cases.
A former AT&T executive, Nacchio was hired to head Qwest in 1997 when it was installing fiber-optic networks along railroad rights-of-way. He attracted Wall Street's attention after engineering Qwest's acquisition of U S West but resigned under pressure in June 2002, about eight months before Qwest restated revenue for 2000 and 2001.