QWEST CEO indicted for insider trading..ho hum...just another one, huh
Date: 12/21/2005 9:55:07 AM ( 16 y ) ... viewed 1333 times
Ex-Chief of Qwest Is Indicted
By KEN BELSON
Published: December 21, 2005
Federal prosecutors announced yesterday that Joseph P. Nacchio, the former chief executive of Qwest Communications International, had been indicted on charges of insider trading involving stock sales worth more than $100 million.
The indictment lists 42 counts against Mr. Nacchio involving sales of more than 2.5 million shares of Qwest stock in the first half of 2001. During that time, Mr. Nacchio knew that his company was in danger of missing its financial targets, according to the indictment announced by federal prosecutors in Denver, where Qwest has its headquarters.
"Beginning as early as August 2000, Nacchio was specifically and repeatedly warned about the material, nonpublic financial risks facing Qwest and about Qwest's ability to achieve its aggressive publicly stated financial targets," the prosecutors said in the indictment, the culmination of a three-year investigation. "Nacchio's stock sales accelerated in January 2001 as he became aware of additional material, nonpublic information."
Mr. Nacchio, 56, who lives in Mendham, N.J., flew to Denver Monday and surrendered to the F.B.I. In court, he pleaded not guilty.
"After many months of intense media attention and speculation, Joe Nacchio looks forward to vindicating his name in court," his lawyers, Herbert J. Stern and John M. Richilano, said in a statement. They added that Mr. Nacchio had testified when asked by the government and that he had "perfect confidence in his exoneration."
Prosecutors agreed to let Mr. Nacchio go free provided that he post a $2 million bond.
On Jan. 11, the government is scheduled to turn over evidence to the defense. On Jan. 20, both sides will meet the judge in the case, Edward W. Nottingham, to determine scheduling for motions.
Each of the 42 counts carries a penalty of up to 10 years in prison and a fine of up to $1 million. The government is also demanding that Mr. Nacchio forfeit $100,812,582, or the amount of the proceeds from the stock sales in question.
Mr. Nacchio's indictment is the latest in a series of charges brought against former executives accused of misleading investors about their companies' financial condition. In the most notable case, jurors in March found the chief executive of WorldCom, Bernard J. Ebbers, guilty of masterminding an $11 billion fraud. In July, Mr. Ebbers received a 25-year sentence that he is appealing.
Like WorldCom, Qwest was a highflying telecommunications company whose stock soared in the 1990's. After hitting a high of $64.50 in March 2000, the company's stock plunged 98 percent, dropping to $1.11 in August 2002. During that time the government began investigating a multibillion-dollar fraud at the company.
"Insider trading is a crime as we've said in the past and it's important for corporate executives to recognize that when they are in possession of information that the public is not, they are under a duty to abstain from trading, buying or selling stock during that time," William Leone, the government's lead attorney, told reporters in Denver.
Mr. Nacchio was forced by Qwest's board to resign in June 2002.
In March, the Securities and Exchange Commission sued Mr. Nacchio and other former Qwest executives, accusing them of overstating $3 billion in revenue from 1999 to 2002.
The S.E.C. claims that Mr. Nacchio earned $216 million in compensation based partly on the company's inflated financial figures.
Federal prosecutors in Denver have persuaded several other former Qwest executives to plead guilty, and they have also cooperated with the government's investigation. One of them, the former chief financial officer, Robin Szeliga, pleaded guilty to insider trading and is awaiting sentencing.
Mr. Leone declined to say whether Ms. Szeliga or any other former Qwest executive would testify against Mr. Nacchio.
Despite the size of the trades, winning convictions in insider trading cases is difficult. Prosecutors are required to prove that a defendant not only had inside information, but also used it when trading stock. Yet finding a document that details such information is not easy because executives rarely write memos when discussing fraud.
"No one is going to send out info that they are cheating on their financials," said Steve Thel, a professor at the Fordham University School of Law. "You have to show he had that information."
Qwest, the dominant local phone company in 14 Western states, agreed last month to pay $400 million to shareholders who sued the company after it restated billions of dollars of revenue between 1999 and 2002. The settlement, which is subject to court approval, would resolve claims against Qwest, its board and former executives, except Mr. Nacchio and Robert S. Woodruff, a former chief financial officer.
Last year, Qwest, without admitting any wrongdoing, also agreed to pay $250 million in fines to the Securities Exchange Commission.
Qwest, the weakest of the four Bell phone companies, has never recovered from its accounting woes. It has sold its directory business and wireless holdings to help reduce its huge debt.
In the third quarter, Qwest lost $144 million. Its shares fell 12 cents yesterday, to $5.65.
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