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Slate of civil actions awaits

Conviction eases SEC's fraud claims, legal experts say

Jeff Smith, Rocky Mountain News

Published April 20, 2007 at midnight

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Joe Nacchio's legal problems go beyond Thursday's conviction on 19 criminal insider-trading charges.

The former Qwest CEO still faces civil-fraud claims by the Securities and Exchange Commission, securities fraud class-action claims by Qwest investors, and other smaller civil actions.

The various civil fraud suits cover a longer period of time, typically from 1999 to 2002. And legal experts say Thursday's conviction, which covered $52 million of stock sales in April and May 2001, will have an impact.

"Joe Nacchio's conviction would make the SEC case against him considerably easier, given the higher burden of proof on the criminal side," said Diana Powell, a former SEC litigator and now a Denver lawyer with Gutterman Griffiths.

While criminal actions require a jury to find a defendant guilty beyond a reasonable doubt, civil actions carry a lower burden of proof.

The SEC alleges Nacchio orchestrated a $3 billion financial fraud between 1999 and 2002 and is seeking $216 million in "ill-gotten" gains. Federal regulators also want to bar Nacchio, 57, from serving as an officer of a publicly held company again.

Magistrate Judge Craig Shaffer recently ordered the SEC and Nacchio's attorneys to contact him within 72 hours of the Nacchio verdict to set up a status conference. Exchange of evidence, or discovery, in the SEC case against Nacchio has been frozen because of the criminal proceedings.

If Nacchio is ordered to forfeit the $52 million of proceeds from his illegal stock sales, that amount may be subtracted from the $216 million sought by the SEC. But the law permits the SEC to seek up to triple damages, said Chris Bebel, a former federal prosecutor in Texas.

Bebel said defense attorneys will try to "whittle down" the amount of money at stake in the civil case by arguing that a "multitude of forces," including the stock market and telecommunications industry crash, resulted in Qwest stock plunging from a high of $66 in March 2000 to $1.07 in August 2002.

Defense attorneys will say "Nacchio can't be held responsible for all those things," Bebel said.

In the stockholder class-action securities fraud case, investors settled with Qwest and other individual defendants for $400 million but carved Nacchio and former Chief Financial Officer Robert Woodruff from the settlement. That means securities fraud claims still are pending against Nacchio and Woodruff.

Michael Dowd, an attorney for the investors' lead law firm, Lerach Coughlin Stoia Geller Rudman & Robbins, didn't respond to a phone call or e-mail for comment this week.

Lewis Gillis, one of the attorneys for former HealthSouth Chairman Richard Scrushy, said it wouldn't be unusual if Nacchio's attorneys were working on the civil cases while waiting for the jury to return verdicts in the criminal insider-trading case.

He said that's what Scrushy's team did part of the time while that jury deliberated 21 days in that 2005 fraud trial.

Other suits

Joe Nacchio still faces a number of civil-fraud suits connected with his tenure at Qwest Communications. Here are the two major ones:

• Securities and Exchange Commission: Seeking $216 million in "ill-gotten gains" and to bar Nacchio from ever serving as an officer for a publicly held company.

• Class-action securities fraud case by Qwest investors