Capital Markets

Prosecutors Dismiss Nacchio’s Defense

The former Qwest CEO has been weighing a ''national security'' defense; prosecutors maintain that government contracts accounted only for 1.5 perce...
Stephen TaubJanuary 24, 2006

Attorneys for Joseph Nacchio — the former chief executive officer of Qwest Communications International Inc. charged with 42 counts of insider trading — have reportedly been considering a “national security” defense. That is, his sale of $100.8 million in Qwest shares was not illegal because he was in possession of positive, but classified, information about government contracts he believed Qwest would win.

Federal prosecutors now maintain that this defense is irrelevant, reported The Wall Street Journal, citing just-unsealed court documents. According to the paper, the government plans to assert that the possession of positive insider information doesn’t immunize a defendant against accusations of trading on negative insider information.

U.S. Attorney William Leone reportedly asserted in the court documents that Qwest’s government contracts accounted only for 1.5 percent of the company’s revenue, and classified contracts, even less.

According to the Rocky Mountain News, which cited the same court documents, former Qwest president and chief operating officer Afshin Mohebbi warned Nacchio as early as January 2001 about the “big problems” the company faced if it couldn’t “crank up” its business. Mohebbi warned his former boss in writing, the News elaborated, then emailed a similar warning to chief financial officer Robin Szeliga.

“I told him we have done a great job of doing the one-time things and that cannot continue,” Mohebbi wrote to Szeliga on January 2, 2001, according to the paper. “We need the recurring [revenue items] to take off big time by the end of first quarter or we are screwed.”

A deal between prosecutors and Szeliga — who pleaded guilty last year to one count of insider trading and agreed to testify against Nacchio — fell apart last week. No trial date has yet been scheduled for the former CFO.