Qwest's Nacchio Faces Insider-Trading Charges

Former Qwest CEO Joe Nacchio will appear in court Monday to answer charges of insider trading. He is accused of selling more than $100 million in stock as the company's finances were falling apart.

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The former head of Qwest Communications goes on trial today in Denver on charges of insider trading. Qwest is the main telephone company in 14 Western states. Prosecutors say Joe Nacchio sold more than $100 million of his own company's stock in 2001 while knowing Qwest was on shaky financial ground.

From Denver, NPR's Jeff Brady reports.

JEFF BRADY: Joe Nacchio's trial will be held in a town hit hard by the telecom bust a few years back. His lawyers unsuccessfully tried to get the trial moved for that reason. In the midst of this bitter atmosphere for Nacchio, a local newspaper recently put a training video on its Web site, featuring the former CEO making claims that now seem ironic.

Mr. JOE NACCHIO (Former CEO, Qwest Communications): At Qwest, we've dedicated ourselves to the highest standards of legal and ethical business conduct.

BRADY: Nacchio came to Qwest after being passed over for the top job at AT&T in the mid-90s. Under his leadership, the stock price of Qwest soared. That allowed Nacchio to gobble up Baby Bell US West in 1999. By then, Mimi Hull had already retired from her management position at the telephone company, but she was active with the Association of U.S. West Retirees. In 2001, she watched Qwest's stock price drop from a high of about $40.

Ms. MIMI HULL (Former Manager, U.S. West): It was unbelievable. I mean, it's like a freefall jumping off the edge of a cliff, and you're thinking, you know, there's going to be something to grab onto here before I go splat at the bottom. And it never happened. It went all the way down to a dollar or something.

BRADY: Hull says retirees who left their money in Qwest suffered. Some lost hundreds of thousands of dollars. But Joe Nacchio fared pretty well. That's because just before the stock tanked, he started aggressively selling huge blocks of shares, netting more than $100 million in five months.

These days, there's only one thing retirees like Hull want: revenge, in the form of Joe Nacchio being led off to prison.

The storyline appears similar to other recent CEO trials, but Wayne State University law professor Peter Henning says this one is different. Instead of getting into the accounting minutiae that can put a jury to sleep, the prosecutor is focusing only on insider trading.

Professor PETER HENNING (Wayne State University): It's really a much simpler story. Nacchio knew Qwest was in trouble, Nacchio sold, Nacchio is guilty.

BRADY: But Nacchio and his lawyers are expected to argue that he also knew Qwest was in line to receive national security contracts from the government that would boost the company's revenue. To employ this defense, Nacchio's lawyers have argued they need to reveal government secrets. In addition to a defense, Henning says this also could be a way to get the charges against Nacchio dropped.

Prof. HENNING: If the government decides not to disclose information that the judge determines needs to be disclosed so that the defendant can receive a fair trial, then one of the options - although the last option, certainly - but one option is to dismiss the charges.

BRADY: Henning says this issue also could lay the groundwork for an appeal if the jury convicts. The former CEO also faces a Securities and Exchange Commission civil lawsuit. If he loses both cases, Nacchio could end up nearly broke and in prison. The criminal trial begins this morning and is expected to last six to eight weeks.

Jeff Brady, NPR News, Denver.

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