Former Qwest Communications chief executive Joe Nacchio was sentenced to six years in prison Friday for making $52 million in illegal stock sales while a multibillion-dollar accounting scandal brought the telecommunications company to the brink of bankruptcy.
U.S. District Judge Edward Nottingham also ordered Nacchio to forfeit the $52 million within 15 days, imposed a maximum $19 million fine and ordered him to serve two years’ probation after serving his sentence.
The judge denied Nacchio’s request to be granted bail while he appeals his conviction. He ordered Nacchio to report to authorities within 15 days once a federal prison is chosen for him.
Nacchio, 58, a former AT&T executive, is among the latest in a string of former top-level executives to be convicted in corporate fraud scandals targeted by a government task force established in 2002.
He was convicted in April of making the stock sales at a time when he knew Qwest faced financial risk but didn’t tell investors. He had faced a maximum term of seven years, three months in prison.
“The crimes the defendant has been found guilty of are crimes of overarching greed,” Nottingham said.
With his attorney, Herbert Stern, at his side, Nacchio stood before the judge as he was sentenced, his hands clasped firmly in front of him. He then turned to look at his wife, Anne, and son Michael, and nodded slightly.
“The crimes the defendant has been found guilty of are crimes of overarching greed,” Nottingham said.
Nacchio declined to testify at his sentencing hearing.
Nottingham earlier denied a defense motion for an acquittal and for a new trial, dismissing claims that jurors were swayed by damaging pretrial publicity.
“This was an extraordinary jury,” he said. “In this court’s view, the verdict takes a rational view of the evidence.”
At one point, the judge told Nacchio he was going to prison despite Nacchio’s pleas for leniency because of the health of his other son, David, who attempted suicide seven years ago. Stern said Nacchio was a critical person to his son’s well-being and that the length of prison time “can make a difference.”
Nacchio, his wife and son Michael broke into tears as Stern described David’s mental health problems. David’s suicide attempt prompted his father to consider resigning from Qwest in January 2001, according to trial testimony.
But Nottingham noted he deals with many difficult family situations in his courtroom and that Nacchio’s situation wasn’t extraordinary. “The choice hasn’t always involved putting this young man at the very top of his list,” the judge said of Nacchio.
Thousands of investors lost money when Qwest Communications International Inc.’s stock price plummeted from more than $60 a share in 2000 to just $2 a share in 2002. The scandal forced Qwest, a primary telephone service provider in 14 mostly Western states, to restate $2.2 billion in revenue.
The Securities and Exchange Commission has requested court permission to begin distributing $267 million to investors who purchased Qwest stock between July 27, 1999, and July 28, 2002.
The money was collected in settlements of six lawsuits filed as a result of the agency’s investigation into Qwest’s accounting practices. The SEC hoped to begin distributing checks on Tuesday to investors who submitted valid claims.
Nacchio was indicted in December 2005, nearly three years after then-Attorney General John Ashcroft announced the first indictments in the Qwest investigation, calling it an example of the government’s intolerance of white-collar crime.
The case grew out of the accounting scandal in which federal regulators said Qwest falsely reported fiber-optic capacity sales as recurring instead of one-time revenue between April 1999 and March 2002. They said the practices allowed the company to improperly report about $3 billion in revenue and helped it acquire the former Baby Bell company, U S West Inc.
Prosecutors adopted a narrow focus on insider trading against Nacchio, indicting him for 42 stock sales completed in the first five months of 2001 — a time when business unit managers warned that Qwest faced financial risk because it was increasingly relying on money from one-time sales to meet revenue targets.
A jury deliberated six days before acquitting Nacchio on 23 counts and convicting him on 19 for transactions that occurred in April and May 2001 — after Qwest released its 2001 first-quarter results but didn’t tell investors about the revenue situation.
Nacchio’s legal issues are far from over. A civil fraud case is pending against him and four other one-time Qwest executives alleging they orchestrated financial fraud that led to the scandal. A trial isn’t expected to be set until 2009.