In the latest in a series of convictions against corporate executives, one-time CEO Joe Nacchio was found guilty of illegally selling $52 million in stock amid an accounting scandal that nearly sank Qwest Communications.
Nacchio left the federal courthouse with his wife and son Michael after Thursday’s verdict, declining to comment yet determined to appeal the 19 insider trading convictions, each of which carries a sentence of up to 10 years in prison and a $1 million fine.
Nacchio is one of a handful of former Qwest executives who have been convicted of criminal charges stemming from a multibillion-dollar scandal that forced the Denver-based telecommunications company to restate $2.2 billion of revenue.
He also is the latest to be convicted as part of the government’s push to punish white-collar executives stemming from accounting fraud at companies from Enron to WorldCom.
“The government has another notch in their belt,” Houston securities lawyer Tom Ajamie said. “They’ve had a tremendous winning streak in these corporate crime cases.”
The government accused Nacchio of selling $101 million in stock in 42 transactions from January to May 2001 based on non-public information that the company faced financial risk and used one-time sales to meet revenue projections.
A former Qwest finance chief and former president were among government witnesses who described warnings they gave Nacchio late in 2000 about his revenue targets, which forecast growth of up to 17 percent despite aggressive competition and a weakening economy.
In early April 2001, Qwest released financial results indicating it had met its quarterly objectives, but Nacchio did not mention the huge amount of revenue from one-time sales used to achieve the goals.
The jury acquitted Nacchio of all 23 insider trading counts involving sales before April 2001 but convicted him on 19 counts tied to sales of 1.33 million shares for $52 million in gross proceeds from April 26 to May 29, 2001.
“It was a very thoughtful verdict. They saw at some point that Joe Nacchio knew what investors didn’t and chose to profit from it,” lead prosecutor Cliff Stricklin said, adding that the government plans to seek prison time for Nacchio.
“’Convicted felon Joe Nacchio’ has a very nice ring to it,” boasted Troy Eid, the U.S. attorney for Colorado.
During the trial, Nacchio’s attorneys claimed he was optimistic about the company’s future and that he was required to sell stock under the terms of his employment contract.
They decided against introducing evidence that Nacchio was alone among Qwest executives who knew the company could receive lucrative contracts from clandestine government agencies.
Instead, they chose to put on just three witnesses. Two, including Qwest founder Phil Anschutz, testified that Nacchio wanted to resign in January 2001 to be in New Jersey with his family. The third, a Northwestern University professor, testified about Nacchio’s pattern of stock sales.
Defense attorney Herbert Stern declined to comment after the verdict except to say he planned to appeal the decision.
U.S. District Judge Edward Nottingham set a July 27 sentencing date for Nacchio, who is free on $2 million bail. Nacchio also could be required to forfeit the $52 million in proceeds tied to the convictions, but that will be determined by the judge at sentencing.
The Justice Department has gone after a number of corporate executives in cases involving accounting and fraud scandals in the late 1990s and 2000 that sparked outrage among investors.
Former Cendant Corp. Chairman Walter Forbes is serving more than 12 years in prison and has been ordered to pay $3.28 billion in restitution. He was convicted of conspiracy to commit securities fraud and other charges in a massive fraud scheme that cost the travel and real estate company and its investors more than $3 billion.
Former WorldCom chief Bernard Ebbers is serving a 25-year prison sentence for his role in the fraud that drove that Clinton, Miss.-based company into bankruptcy in 2002.
Former Enron chief executive Jeffrey Skilling is serving 24 years and four months in prison for fraud and other crimes in the collapse of the former energy giant. Enron founder Ken Lay also was convicted, but a judge vacated that decision when Lay died of a heart attack last year.
HealthSouth Corp. founder Richard Scrushy was acquitted of all charges in a $2.7 billion fraud during his tenure at HealthSouth.
The criminal case against Nacchio stemmed from a years-long government investigation into an accounting scandal at Qwest Communications International Inc., a primary telephone service provider in 14 mostly Western states.
Federal regulators have said Qwest falsely reported fiber-optic capacity sales as recurring instead of one-time revenue between April 1999 and March 2002, a practice that allowed Qwest to improperly report about $3 billion in revenue. Qwest later restated about $2.2 billion in revenue.
Former Qwest Chief Financial Officer Robin Szeliga is serving probation on one count of insider trading that occurred at the same time as Nacchio’s stock sales. Two former midlevel managers pleaded guilty to charges stemming from a Qwest deal with Arizona schools.
A civil fraud lawsuit is still pending against Nacchio, former President Afshin Mohbebbi and other one-time executives, alleging they orchestrated a financial fraud that led to the scandal. The Securities and Exchange Commission is seeking repayment and civil penalties, with the amounts to be determined at trial.