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April 10, 2007 10:46 AM

Day 14: Closing arguments

5:03 p.m.: Court is in recess until Wednesday, when the defense will continue closing arguments.

5 p.m.: Joe Nacchio didn't pull 15 to 17 percent growth rates "out of his ear," lead defense attorney Herbert Stern said in closing arguments.

Stern said those growth rates were "authenticated" by two major investment banking firms, which were paid an "enormous amount" to come up with projections in 1999 what a merged Qwest-U S West could do.

"It is not true," Stern said, that when Nacchio made his 2001 projections that he made that up "out of thin air, or out of hope, or out of aggressiveness or to deceive somebody or to promote his stock or to cheat anybody."

4:35 p.m: Joe Nacchio, facing the expiration of his first batch of stock options, had to "use them or lose them," lead defense attorney Herbert Stern said in closing arguments.

Stern noted Nacchio didn't sell any of his $28.50 stock options.

"If you think the company is going to hell in a handbasket and the company stock is going down to $4," Stern said, don't you think it would be smart to get rid of the $28.50 stock options?

Stern said Nacchio sold his $5.50 options because he had to use them before they expired and that's the "simple, honest truth."

"Maybe the business projections didn't come true," Stern said. Maybe Nacchio's energy, drive and ambition that built the company in the end led him to "miscalculate what could be achieved in the terrible year of 2001. But that is not a crime, at least not yet."

3:55 p.m: Lead defense attorney Herbert Stern asks the jury for "justice," to acquit Joe Nacchio of the false insider-trading charges.

Stern again is maintaining the complaints by other Qwest executives concerned much higher internal budget figures, not Qwest's publicly-stated targets. The executives were naturally resistant to the higher budget figures because their compensation depended on meeting those internal targets, Stern said.

Stern said Nacchio personally believed in those targets, and his conduct was reasonable given that belief.

He cited two witnesses who said Nacchio didn't want Qwest stock, he wanted cash, but the company's board wouldn't do it. Nacchio became entitled to the growth stock, and a $14 million payment was advanced to January 2001.That amount was irrespective of the company's stock price at the time, Stern said.

He noted that additional $4 million Nacchio could have received from the growth stock sale instead was put into a life insurance policy.

As for the stock options, Stern said there was pressure to sell them before they expired on June 30, 2003 and became worthless. In fact, he said, Nacchio's adviser wanted him to sell more stock than he did.

Stern also noted that Nacchio went to the board to try to get his first batch of $5.50 options extended beyond the June 2003 expiration. He cited former director Craig Slater's testimony that Qwest would have had to take an accounting charge of several hundred millions of dollars in order to do so.

3:35 p.m: Prosecutor Colleen Conry finished her closing arguments, saying Joe Nacchio "is here because of his own choices."

She reiterated that if Nacchio didn't tell (investors), then he couldn't sell (his stock).

She also showed that former Qwest President Afshin Mohebbi's warnings to Nacchio in December 2000 all came true.

3:15 p.m: Prosecutor Colleen Conry has used some colorful phrases as she makes her closing arguments in the Joe Nacchio's insider-trading case.

"Put on your common-sense hat," she said, as she walked through the prosecution's allegation that Joe Nacchio backdated a stock-sale document to Nov. 3, 2000.

She cited a prosecution witness who prepared the stock sale document during the second week of December 2000.

Conry suggested the only other explanation than backdating was that Nacchio would have had to "jump in a time machine" and go back to November 3, 2000 to sign the document.

Conry also has characterized Qwest's reliance on nondisclosed one-time deals to meet publicly-stated targets as a "house of cards" that inevitably came "tumbling down."

Nacchio's plan, she said, was to "keep the house of cards up" until he could dump as much stock as possible.

Conry also described Nacchio as admitting with a "wink and a nod" that no one should have believed his rosy projections after the merger of Qwest-U S West was announced. That relates to a conversation Nacchio had with a Goldman Sachs analyst in the summer of 2001.

Conry said Nacchio's comments revealed his state of mind -- an "intent to deceive," a "lack of good faith." She added Nacchio took advantage of people on the other side -- investors who were buying Qwest stock at a time he was selling $100 million of stock.

2:45 p.m: "If you don’t tell, you can’t sell," prosecutor Colleen Conry says as the governnment makes closing arguments in the insider-trading case against former Qwest CEO Joe Nacchio.

The case is about choices, Conry said.

"He makes the decision not to tell the investing public exactly what he knows," Conry said. She said Nacchio knew Qwest was filling growing revenue gaps through one-time deals that were becoming more and more difficult to replicate. "If that's all he did, none of us would be here."

But Nacchio made the choice not to tell investors and then sell stock at a faster rate than he ever had done before, Conry said, putting "his foot to the accelerator." And that's when his behavior became a criminal act, she said.

"He's here today because of his own choices," Conry said.

She said Nacchio's decisions came at a time the "titans" of the industry were falling, and investors were pressing Nacchio for how Qwest was making its financial targets.

She noted Nacchio met with analysts and investment groups some 55 times during the period, and "this was the obvious question on everybody's mind." She said Nacchio had the final say on press releases, and fielded most of the questions on analyst calls.

Conry replayed a video clip of Nacchio talking about how he knew Qwest's stock would get whacked if the company missed its projections by only $50 million, and how one "might as well enjoy it on the upside."

Conry also spent some time countering the defense argument that executives were complaining about internal budget figures, not the public financial targets.

She showed charts illustrating Nacchio was warned repeatedly about a $1 billion revenue risk to Qwest's publicly-stated targets.

When Qwest finally lowered its 2001 revenue projections on Sept. 10, 2001, Conry showed Nacchio did so by $1 billion to $20.5 billion for the year. It was like a "good card trick," Conry said. "That’s what they had (for revenue) all along."

Conry also has walked through the repeated warnings by former Qwest executives to Nacchio that the targets were unrealistic and that Qwest was "draining the pond" in the first half of 2001 available one-time deals.

1:20 p.m.: Prosecution witness David Weinstein takes the stand again to address a possible Joe Nacchio stock-sale backdating issue.

Weinstein testified he didn't have a conversation with Nacchio about his growth stock sale on Nov. 3, 2000, the date of the document. Weinstein said he didn't have a conversation with Nacchio about the growth stock sale until Nov. 27, 2000, and didn't hear from Qwest's legal counsel about the planned sale until Dec. 7, 2000.

That may help support the prosecution's allegation that the document certifying Nacchio didn't possess insider information was backdated from mid-December 2000 to Nov. 3, 2000.

Prosecutors allege Nacchio was warned about Qwest's weakening financial condition between those dates. They also are trying to use the backdating issue as an example of possible dishonesty.

The defense, however, previously has raised the point that the law doesn't require the certification to be in writing, and that Nacchio for a long time planned to sell the stock.

The key witness to the backdating issue -- former Qwest associate counsel Yash Rana -- is unavailable for testimony. He indicated to both parties he would take the Fifth if called to testify.

12:20 p.m.: Judge Nottingham rejects a defense's proposed jury instruction that internal budget projections shouldn't be considered material.

Nottingham said the jury is not compelled to agree with the defendant’s view that the case involves nothing more than the debate over internal budget figures.

He said the projections of corporate earnings can be the most material of information.

Nottingham said of Qwest's projections of Sept. 7, 2000: "They were fantastic, they were double-digit projections, the public was entitled to rely on them."

He noted recurring revenue dropped off and Qwest relied on one-time transactions and swaps to make its projections.

A jury could find, he said, that Nacchio had a choice during the time: Either disclose the information or not trade.

10:45 a.m.: Court has convened without the jury to discuss jury instructions.

Judge Edward Nottingham notes only two prosecutors -- James Hearty and Kevin Traskos -- are in attendance for the proceedings. Nottingham quips the prosecution is "largely decimated except for the tall guys." Hearty and Traskos both are well over 6 feet tall.

Jury instructions are seen as a critical element in a criminal case. In a criminal trial of former former midlevel Qwest executives in 2004, deadlocked jurors asked questions of the court during deliberations in efforts to clarify some of the jury instructions.

In the Joe Nacchio insider-trading case, prosecutors face a high burden of proof. Nacchio must be found to have had a willful intent to defraud. His state of mind at the time is a critical determining factor.

Nottingham has discussed disputes over how the jury will be instructed about "materiality" and "nonpublic information" -- key elements of this case. Nottingham is discussing snippets of the instructions, but isn't reading the full instructions. He is indicating he is defining materiality according to what a reasonable investor would find as material.

Nacchio is accused of selling his stock based on material and nonpublic information.

Nottingham also will be telling jurors they shouldn't be influenced by Nacchio's failure to testify on his behalf -- that Nacchio had an absolute right under the Constitution not to testify.

Nottingham has stressed the instructions must be easy for the jury to understand, complaining that one proposed instruction by the government was "wordy and legalese" "... far too complicated."

At another point, he indicated a proposed instruction would put the jury to sleep.

Nottingham especially has been sharp with prosecutor Kevin Traskos today.

Nottingham said he will be telling the jury that former Qwest associate general counsel Yash Rana was unavailable to testify. That relates to an alleged stock sale backdating issue. Rana indicated to both the prosecution and the defense that he would take the Fifth Amendment against self-incrimination if called to testify.


  • April 10, 2007

    5:15 PM

    publican writes:

    If you remember many investment firms had major firings because people hyped telecom and the internet when it wasn't warranted. Instead of telling people to sell (while they were selling themselves) they told people to hold and buy. Many people's savings followed the internet boom south

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