Ex-Qwest CEO Gets Six-Year Sentence

Joseph Nacchio, the former chief of one-time highflier Qwest Communications International Inc. (Q) who was convicted of insider trading, was sentenced Friday to six years in federal prison.

Federal Judge Edward Nottingham also ordered Nacchio to pay a $19 million fine and forfeit $52 million he gained in illegal stock sales.

(This report and related background material will be available on The Wall Street Journal's Web site, WSJ.com.)

Nacchio's attorneys are planning to appeal. The attorneys said they plan to ask the U.S. Bureau of Prisons to allow Nacchio to serve out his sentence in a minimum security prison in Pennsylvania, which is near his New Jersey home and is near to many family members.

"The crimes of which the defendant were found guilty are crimes of overarching greed," Judge Nottingham said. The judge called Nacchio, whose grandparents immigrated to the U.S. from Italy, someone "who rose from immigrant parents and rose to enormous heights by sheer will and talent."

"Perhaps because of his greed he catapulted over the top in this case," the judge said.

In April, Nacchio was convicted in federal court here of 19 counts of insider trading for selling $52 million worth of stock in the spring of 2001 while knowing that his company's finances were in trouble. He also faces a Securities and Exchange Commission civil fraud suit.

For much of the hearing, Nacchio, in a dark suit and blue tie, stood before the judge with a tissue in hand, occasionally wiping his eyes. He declined to speak on his behalf and stood firm when the sentence was announced.

The Nacchio criminal case is among the last of a series of prominent prosecutions of corporate executives brought in recent years.

Prosecutors said Nacchio, a charismatic and blunt CEO who was hand-picked to lead Qwest by its founder Phil Anschutz, maintained an overly optimistic outlook on his company's finances even as the telecom bubble was showing signs of strain in 2000 and 2001 and his underlings told him his optimism might be a stretch. Nacchio resigned in 2002 as Qwest's stock nosedived. The company eventually restated two years of results, eliminating $2.48 billion of revenue for 2000 and 2001.

During his trial this spring, Nacchio's attorneys said the former CEO couldn't have "knowingly and willfully" engaged in insider trading at the time because he was consumed by a suicide attempt by one of his sons. His son's suicide attempt had been a family secret, but he revealed it because his state of mind was an issue.

Nacchio's attorneys also said other Qwest executives' concerns were based on whether they could meet internal revenue targets, which were tied to their bonuses. Nacchio did not testify, and his defense was extremely brief. Nacchio had asked the judge for leniency in sentencing partly based on his son's mental health state, as well as the former executive's "prior good works."

To handle his appeal, Nacchio has hired Maureen Mahoney, a high-profile lawyer best known for her victories before the Supreme Court. She represented Arthur Andersen in 2005 when its criminal conviction was overturned and the University of Michigan Law School in its 2003 defense of its affirmative-action policy.

Mahoney, a former clerk for Chief Justice William Rehnquist and one-time United States Deputy Solicitor General, declined comment on possible appeals. But a recent defense filing from Mahoney seeking to keep Nacchio out of prison pending his appeal lays out the issues that Nacchio is likely to argue to try to overturn his conviction.

His appeal will likely focus on whether the judge erred in instructing the jury about "materiality." In a brief filed earlier this week, Mahoney raises the question of whether the warnings about Qwest's finances conveyed to Nacchio by his executive team were materially different from the sunny outlook he conveyed to investors and analysts.

The brief argues that "predictions are inherently limited and uncertain" and "financial predictions are not materially misleading so long as the company believes them in good faith." The filing also highlights that Qwest's chief financial officer and auditors also signed off on Nacchio's financial guidance.

In the filing, Nacchio's attorneys also object to the judge's exclusion of an expert witness, an economics professor, who they say could have rebutted analysts testifying for the prosecution who said they were upset upon learning about Qwest's questionable accounting practices.

Another issue likely to surface in the appeal is Nacchio's classified defense that he was upbeat about Qwest's financial prospects because he knew the company was going to receive lucrative, secret government contracts. The run-up to the trial was marked by at least seven closed pretrial hearings where classified information apparently was discussed. Judge Nottingham barred some parts of the classified defense, and the matter barely surfaced at trial.

"The rulings effectively deprived the defendant of the opportunity to provide the jury with information that bore directly on his good faith and could have led to an acquittal," the defense filing said.
Source : http://www.smartmoney.com