Nacchio Indicted on 42 Counts of Investor Fraud

TMCnet Associate Editor

Former Qwest Communications CEO Joseph Nacchio has been indicted for his alleged role in an insider trading scheme that took place between 1999 and 2002.

According to published reports, a federal grand jury in Denver has charged Nacchio, 56, with 42 counts of insider trading. If convicted, he could face up to 10 years in prison, a $1 million fine and be forced to pay restitution for each count of investor fraud.

At least six other former Qwest executives have been charged since the Justice Department began its probe of the company in 2002. Former Qwest Chief Financial Officer Robin Szeliga pleaded guilty in July to insider trading and has reportedly agreed to cooperate with investigators.

The indictment is the first charge against Nacchio in the government’s investigation into accounting practices at Qwest, the fourth largest telephone company in the U.S. He is reportedly now in custody and is awaiting his first court appearance, which prosecutors said might come later today.

Nacchio, who maintains he is innocent, already faces civil charges filed by the Securities and Exchange Commission and shareholder lawsuits.

Following a lengthy investigation, the SEC sued Nacchio and eight other Qwest executives in March for committing massive financial disclosure fraud. According to the SEC, the Qwest defendants “engaged in a multi-faceted fraudulent scheme designed to mislead the investing public about the company’s revenue and growth.”

Regulators have said Nacchio sold Qwest shares for a profit of $176.5 million from 1999 to 2001.

According to the SEC, Nacchio and others “made numerous false and misleading statements about Qwest’s financial condition in annual, quarterly, and current reports, in registration statements that incorporated Qwest’s financial statements, and in other public statements, including earnings releases and investor calls.”

As a result of that scheme, Qwest fraudulently recognized over $3 billion of revenue and excluded $71.3 million in expenses. In October 2004, the SEC sued Qwest in a settled injunctive action in which the company agreed to pay $250 million for its misconduct.

Other Qwest officials named in the SEC complaint included Szeliga; former Chief Financial Officer Robert S. Woodruff; former Chief Operating Officer Afshin Mohebbi; former Executive Vice President of Wholesale Markets Gregory M. Casey; former Senior Vice President of Pricing and Offer Management Roger B. Hoaglund; former Senior Vice President of Finance William L. Eveleth; former Director of Financial Reporting James J. Kozlowski; and former Senior Manager of Financial Reporting Frank T. Noyes.

Federal prosecutors, who face a five-year statute of limitations to file insider-trading charges, have focused mainly on Nacchio’s stock sales during April and May 2001, which reportedly netted him about $42 million.

Several of Nacchio's former colleagues - including Szeliga and Casey – are expected to testify against him, authorities have said. Former Qwest President Afshin Mohebbi has been granted immunity and is also expected to testify, however, he will not face criminal charges.

In addition, former Qwest Executive Vice President Marc Weisberg is scheduled to go to trial in January for money laundering and wire fraud charges.

Denver-based Qwest Communications International is a global provider of high-speed Internet, data, video and voice services. The company has approximately 40,000 employees and boasts 744,000 wireless customers; 1.2 million DSL customers; and 4.6 million long distance customers; as well as 15 million access lines and more than 155,000 route miles of fiber optic cable for its network.

Patrick Barnard is Associate Editor for TMCnet and a columnist covering the telecom industry. To see more of his articles, please visit Patrick Barnard’s columnist page.