Go to the mobile version of this Web site.

Login | Contact Us | Site Map | Paid archives | Electronic edition | Subscription Questions | Extras

Milstead: Appeal won't change verdict

Published April 20, 2007 at midnight

Text size  

More Tech & Telecom

More stories »

It's no consolation to Joe Nacchio or his attorneys that a lot of his defense, worked. Jurisprudence is not a volleyball game, where 23 not guilty, 19 guilty is a winning score.

Nacchio is now a felon, pending his appeal.

That supposed smoking gun, the December backdated stock-sale document that purportedly showed Nacchio had material inside information in late 2000? The jury failed to embrace the prosecution's view, finding Nacchio not guilty for 23 trades totaling 1.2 million shares and gross proceeds of $48.8 million.

Those December warnings from former President Afshin Mohebbi? Perhaps the jury believed the defense argument they were complaints about Qwest's internal budget, not its Wall Street guidance.

Instead, it was the April and May sales, done after Qwest had "made its numbers" with a heavy use of one-time IRU revenue, that the jury found it had no reasonable doubt about. The 19 trades total 1.33 million shares and $52 million in gross proceeds.

It was the same time frame in which Chief Financial Officer Robin Szeliga also sold and also ultimately pleaded guilty to insider selling. Judge Edward Nottingham instructed the jurors that they should infer nothing about Nacchio's guilt from Szeliga's guilty plea.

But they didn't have to make that inference. There was plenty of evidence from that time frame. Seven former executives testified about the problem of hitting the numbers and the warnings to Nacchio. Two Wall Street analysts testified they were never told about the warnings or Qwest's solution to the problem, the "one-timers."

Those "one-timers" were the difference between 12.2 percent growth and 7.5 percent growth. And the jury decided that's "material" - something a reasonable investor would want to know.

It was my colleague Jeff Smith who first suggested to me that a "split verdict" was quite possible, with the later the trade in 2001, the greater the risk of a guilty verdict. And Jeff was right, as he has so often been before.

Was the defense overconfident when it called just three witnesses, including a pompous professor-for-hire who thought Michael Milken was railroaded? Or was Nacchio's team prevented from offering its "true" defense, based on the supposed secret government contracts?

Lead attorney Herbert Stern said "we will certainly appeal," which may suggest the latter.

I said it before and I'll say it again: No government contract would have allowed Qwest to book sales early enough to solve its early 2001 revenue problems.

Nacchio can appeal on this basis if he chooses. But ultimately, the judgment will be the same as was reached in a Denver courtroom Thursday. Qwest was misleading Wall Street and its investors, and Nacchio was selling while it happened.