Attorneys call it a day; now it's up to the jury

Two arguments: Nacchio 'not fair' or just 'optimistic'

Sara Burnett, Rocky Mountain News

Thursday, April 12, 2007

The jury hearing the case against former Qwest CEO Joe Nacchio is expected to begin deliberating this morning on 42 counts of insider trading.

Attorneys wrapped up their closing arguments Wednesday with defense attorney Herbert Stern telling jurors Nacchio was an optimistic executive - not a man out to defraud - when he sold stock in early 2001.

"What matters in this room is what is in your heart, in your mind, in your character, and whether you're about the business of stealing and lying and cheating," Stern said. "And I respectfully submit to you that Mr. Nacchio didn't build this company on that basis and wasn't selling any stock on that basis."

Nacchio is accused of accelerating his stock sales between January and May 2001, when prosecutors say he knew Qwest wouldn't make its 2001 numbers. He grossed $100.8 million in those sales.

In his rebuttal argument, First Assistant U.S. Attorney Cliff Stricklin told jurors Nacchio was obligated to share what he knew with investors before he sold.

"If you want a chance to make a lot of money . . . that's fine. But you have to do it . . . in a fair way," Stricklin said. "It is not fair for you to take your money off the table when you know of risk that other people don't know about."

In an argument that lasted more than five hours over two days, Stern repeatedly told jurors that Nacchio set Qwest's earnings targets based on recommendations and predictions from investment bankers who assisted in the merger of Qwest and U S West, and that they weren't numbers he pulled "out of his ear."

Nacchio honestly believed the company could hit the targets, Stern said, adding that there were other factors he had less control over - such as a downturn in the economy - that later led to Qwest's financial troubles.

"Mind you, ladies and gentlemen, he's not charged with forecasting wrong," Stern said.

Stern also said the repeated warnings that former Qwest executives testified they gave Nacchio referred to the company's internal budgets. Those targets, which employees had to hit to earn their bonuses, were higher than the guidance Qwest gave Wall Street, and for the first two quarters of 2001 the company met its numbers, Stern noted.

If Nacchio truly didn't believe in the future of Qwest, he could have quit and sold all his stock in early 2001, Stern added. Qwest founder Phil Anschutz testified Nacchio told him in January 2001 that he wanted to resign because his son had attempted suicide and he wanted to spend more time with his family in New Jersey.

In his rebuttal, Stricklin criticized Nacchio for using the suicide attempt at trial as "some kind of excuse." He choked up after telling jurors he struggled with how to address the issue.

"I'm a father, too, and there's nothing I wouldn't do for my kids," Stricklin said, his voice wavering. "But I wouldn't lie for them, and I wouldn't steal."

Stricklin then noted Nacchio didn't leave Qwest in January 2001 and he continued to travel back and forth to Denver while his son was hospitalized.

Seated at the defense table, Nacchio was visibly upset by Stricklin's comments, removing his glasses and wiping his eyes with a tissue.

Stricklin also urged jurors not to consider Nacchio the victim in the case. The true victims, he said, were the people who invested in Qwest stock without knowing the information that Nacchio knew.

"For every sale of stock that Joe Nacchio made . . . there is somebody on the other side giving them - giving him - their hard-earned money," he said.

"They invested their dreams, their hopes, maybe early retirement, maybe college for their kids."

Stern moved for a mistrial at the conclusion of the arguments, saying Stricklin's mention of "victims," or people who lost money in Qwest stock, was improper. Judge Edward Nottingham, who had previously ruled that prosecutors could not present testimony about investors' losses because it is not relevant to the charges against Nacchio, denied the motion.As the case heads to the jury

• What the government must prove: That Joe Nacchio sold his Qwest stock "on the basis of" material, nonpublic information. The inside information need not have been the sole reason for a sale. It is sufficient if it was a significant factor in the decision to sell stock.

• The "good faith" of a defendant is a complete defense. An honest mistake in judgment doesn't rise to the level of criminal conduct. But a defendant isn't acting in good faith if he knowingly makes false or fraudulent representations.

• Potential penalties if convicted: Up to 10 years in prison. Fines of up to $1 million for each of the 42 counts. The government also is asking that Nacchio forfeit the net proceeds from his $100.8 million of stock sales during the first five months of 2001.THE DAY'S HIGHLIGHTS

• If Joe Nacchio "had a corrupt heart, if he was a man who was intent on cheating people, covering up, finding ways to slime on, he had the perfect out," defense attorney Herbert Stern said in his closing argument. Stern reiterated Nacchio wanted to quit because of one of his son's emotional difficulties and could have resigned in February 2001 and sold all the stock he had.

• Stern also said that when Nacchio sold his $5.50 options in 2001, he was executing a plan announced to the public in October 2000. He also noted Nacchio gave shares to his children and didn't sell any of his $28.50 options .

• Prosecutor Cliff Stricklin tried to meet the government's burden of proof on Nacchio's state of mind by showing examples of some "unguarded moments." One of the most powerful came when former investor relations director Lee Wolfe told Nacchio that investors were pressing for more disclosure about how Qwest was making its numbers. "Screw 'em, go tell them to buy," Nacchio allegedly said.WHAT THEY'RE SAYING

"This is a clear case of insider trading. To listen to the defense's case is to elevate Joe Nacchio to the level of victim. When you've cashed out $100 million and you have a net worth of nearly a half-billion, how much of a victim can you be?"

Cliff Stricklin, assistant U.S. attorney, in his rebuttal argument

"He believed the projections. He certainly did not run to the marketplace to trade because this one or that one told him he couldn't make the budget."

Herbert Stern, lead defense attorney, in his closing argumentWHAT'S NEXT

• The jury will get its instructions this morning and then start deliberating on a verdict.

burnetts@RockyMountainNews.com or 303-954-5343