Lists provide strategy hints

Anschutz one of few surprises in possible witnesses

Jeff Smith, Rocky Mountain News

Published March 20, 2007 at midnight

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Joe Nacchio's attorneys and federal prosecutors issued intriguing witness lists Monday that included Qwest founder Phil Anschutz as a potential defense witness and Anschutz official and former Qwest director Craig Slater as a possible prosecution witness.

Former Qwest chief legal counsel Drake Tempest - who commuted with Nacchio, Qwest's former CEO, from the East Coast to the telco's Denver headquarters - was named as a possible witness for both the prosecution and the defense.

Nacchio's team, based on the witness list, still seems intent on pursuing a national security defense, arguing Nacchio was optimistic about the telco's ability to land lucrative government contracts to offset any business weakness. The witness list also suggests his attorneys will argue he was advised by his stock brokers to diversify his holdings and he didn't possess nonpublic material information required to be disclosed.

The government has lined up witnesses expected to say Nacchio knew the company was doing questionable one-time deals such as network capacity swaps to make its numbers. Prosecutors also have a number of witnesses expected to testify that investors and analysts were pushing for more disclosure on how Qwest was able to generate double-digit revenue growth during a telecommunications glut.

Included in the potential witness list, for example, is Simon Flannery, a Morgan Stanley analyst who raised questions in a report about Qwest's revenue by mid-2001. Nacchio, in a November 2001 interview with the Rocky Mountain News, maintained the Morgan Stanley analysts weren't the "sharpest knives in the drawer."

The witness lists indicate who may be called to testify. For a variety of reasons, some may never be called.

It's unclear why Nacchio would call Anschutz. In interviews with congressional investigators in 2002, Nacchio characterized Anschutz as involved in Qwest's day-to-day operations, but Anschutz denied that was the case. The congressional committee sided with Anschutz.

It's also unclear why the prosecution would call Slater. But a person close to Qwest's board said Slater, who was involved in the board's compensation issues, might explain how the board advised Nacchio to stagger his stock sales if he were to exercise his options.

A key prosecution witness still is expected to be former Chief Financial Officer Robin Szeliga, who pleaded guilty to one count of insider trading and avoided jail time in exchange for cooperation.

If Nacchio's team pursues the national security defense then James Payne, head of Qwest's government business at the time, may prove a key witness. But based on an interview with prosecutors in November 2005, Payne also may support the prosecution's argument that the potential contracts were speculative.

Former director Tom Stephens may testify the audit committee directed management to provide more disclosure about the one-time sales and swaps of network capacity. He also may talk about warnings he got in the spring of 2001 that the business was weakening.

James Smith, who headed the Dex directory business, may testify that Nacchio wanted the Yellow Pages schedules juggled in order to boost revenue.

Nacchio's stock broker Salvatore Tiano may testify that he advised Nacchio to diversify his stock holdings.

The witness list

PROSECUTION

• Robin Szeliga, former Qwest chief financial officer

• Afshin Mohebbi, former Qwest chief operating officer

• Drake Tempest, former Qwest chief legal counsel

• Lee Wolfe, former Qwest investor relations director

• Tom Stephens, former Qwest audit committee chair

• James Smith, former head of the Dex publishing business

• Betsy Barnard, former Qwest executive vice president of consumer/ small business

• Ian Ziskin, former Qwest human resources director