By Associated Press Writer
updated 3/21/2007 5:05:10 PM ET 2007-03-21T21:05:10

Former Qwest Communications chief executive Joe Nacchio reaffirmed the company's optimistic growth projections during a conference call with analysts in December 2000, at a time when others in the industry were lowering their forecasts, a former Qwest executive testified Wednesday.

Shares of Qwest Communications International Inc. rose $5 on the day of the call and gained an additional $5 a share within five trading days, Lee Wolfe, then senior vice president of investor relations, told jurors in Nacchio's insider trading trial.

Nacchio is accused of illegally selling $101 million of stock based on non-public information.

Wolfe, the trial's first witness, took the stand for a second day Wednesday.

In December 2000, Wolfe said analysts and investors were concerned about the impact of economic problems and increasing competition in some of Qwest's core businesses, among other problems. "This was a very intense period," he said.

Nacchio sat watching closely as Wolfe took jurors through a series of memos and other company documents.

Earlier, Nacchio's attorney said his client "believed passionately, firmly and honestly in the public financial targets of his company" and was reluctant to sell shares in early 2001. Attorney Herbert Stern told jurors during his opening arguments Tuesday that Nacchio had asked the board for an extension of a deadline to sell stock options, but was turned down.

"We're going to demonstrate and show and prove to you that the accusations in this case are false," Stern said.

Earlier, prosecutor James Hearty insisted that Nacchio dumped $101 million worth of stock in the first five months of 2001 because he knew that Qwest could be in financial trouble.

"This is a case about cheating," Hearty said in his one-hour opening statement. "He sold $100 million worth of Qwest stock when he knew about problems at Qwest _ problems that people outside Qwest did not know."

Wolfe, who was in the investor relations post in late 2000 and 2001, told jurors Tuesday that in late 2000, he and Nacchio talked about the telephone industry and concern that other companies were building fiber optic networks similar to Qwest's operation.

About the same time, industry analysts "were trying to understand how we were going to achieve our financial targets," Wolfe said.

He said there was a "golden rule" at Qwest _ never to take any action that would hurt the stock price _ something Nacchio communicated to employees.

Nacchio, 57, is accused of 42 counts of insider trading for improperly selling stock while privy to internal information that indicated Qwest was at financial risk. Each count carries a penalty of up to 10 years in prison and a $1 million fine.

The defense said in a court filing that it has added Richard Clarke, a former White House anti-terrorism chief, to its witness list. Clarke, who also had been a special advisor to President Bush on cybersecurity issues, had spoken at least once to the National Security Telecommunications Advisory Committee, which Nacchio headed when he resigned from Qwest in 2002.

The company, which provides phone service to 14 mostly Western states, soon after became mired in an accounting scandal and eventually restated $2.2 billion in revenue.

After a jury of 11 men and seven women was seated, Hearty emphasized to the panel that the case was straightforward and had nothing to do with accounting.

Late in 2000, Nacchio became aware of problems Qwest would be facing in 2001 and that the company could fall far short of financial targets it had set publicly, Hearty said. At the same time, Nacchio repeatedly "told investors that everything at Qwest was great."

"Mr. Nacchio sold many more shares of Qwest stock during this time period than he had ever sold before. In the first five months of 2001, Mr. Nacchio sold 250,000 more shares than he had in the previous 18 months combined," Hearty said.

"He told investors that he was very confident that Qwest would achieve the high growth rates that he told them to expect," Hearty said. "But at the same time, he was being told different information from (executives) at Qwest."

Qwest's stock price plummeted from more than $60 a share in 2000 to just $2 a share in 2002, and its near-collapse left thousands of pensioners in financial trouble.

Stern countered that documents used by prosecutors to depict Qwest's public growth targets were in fact about budgets set internally that were designed as goals to energize Qwest workers into exceeding those estimates.

In addition, Nacchio was aware of secret, potentially lucrative government contracts that Qwest could win and the money would help the company's financial picture, Stern said.

Stern promised that the defense would account for all of Nacchio's stock sales and that they were timed in part by Nacchio's contract with Qwest founder Philip Anschutz _ not inside information.

Nacchio also was being urged by his personal financial advisers to diversify his portfolio, and in some cases he faced the loss of stock options set to expire, Stern said.

Copyright 2007 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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