Who gets what awaits answers

Amount Nacchio will forfeit comes out on Friday

Jeff Smith, Rocky Mountain News

Published July 25, 2007 at midnight

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Victims of former Qwest CEO Joe Nacchio's insider-trading crimes stand to recoup a bit of their money, but the amount won't be determined until sentencing Friday - and that decision is likely to be appealed.

Also still to be determined is how the victims will be defined and identified. Securities are generally held in the name of a brokerage firm rather than an individual, making identification of a stock buyer on a particular day difficult.

Prosecutors want Nacchio to forfeit $52 million in gross proceeds from his stock sales in April and May 2001, and be fined the full $19 million, or $1 million for each insider-trading count.

Defense attorneys counter that the fine should be capped at $6 million and that only $1.8 million should be forfeited.

The fines ultimately will be funneled by the Justice Department into a nationwide crime victims fund, while the forfeited funds are required to go specifically to the victims of Nacchio's crime, Jeff Dorschner, spokesman for the U.S. attorney's office in Colorado, said this week.

"It's unclear how you're going to identify the victims," said Mimi Hull, president of the Association of U S West Retirees. "But I'd love to see (the money) go to the $400 million (civil settlement) Qwest is paying" to shareholders from 1999-2002.

Asset forfeiture from insider-trading stock sales hasn't been tested in the 10th Judicial Circuit, which includes Colorado. Prosecutors have cited a 10th Circuit case involving a drug dealer to argue that Nacchio should be required to forfeit his gross proceeds. They maintain that the primary purpose of forfeiture is "punishment."

Nacchio's attorneys have referred to cases from other circuits to argue that only net profits should be counted.

They have gone further to whittle down the net profits to $1.8 million, based on a novel analysis of the impact on Qwest stock when additional disclosures were made later in 2001.

What U.S. District Judge Edward Nottingham determines to be forfeited will drive Nacchio's sentence.

If Nacchio is ordered to forfeit $52 million, the recommended sentence (the judge can deviate) ranges from 70 to 87 months. But if Nacchio is required to forfeit only $1.8 million, the range drops to 30 to 41 months.

If only option costs are deducted, Nacchio would forfeit $44.6 million and still be in the 70- to 87-month range. If taxes and option costs are subtracted, he would pay $28.6 million and face a recommended sentence of 63 to 78 months.

Experts generally think Nottingham will mostly side with the government, though he might agree that option costs and perhaps taxes should be deducted.

Where Nacchio's money would go

Former Qwest CEO Joe Nacchio faces three different categories of potential assessments, fines and forfeiture when he is sentenced Friday:

• Fine: Up to $1 million per count, or $19 million, to a nationwide crime victims fund. Prosecutors want Nacchio to be ordered to pay the full $19 million. Defense requests the fine be capped at $6 million.

• Forfeiture: Law requires the government to distribute the funds to the victims of the crime, but it's unclear how those victims would be determined. Government is seeking forfeiture of $52 million in gross proceeds from Nacchio's 19 illegal stock sales in April and May 2001. Defense argues stock option costs, taxes, brokerage fees and other factors should be considered, and only $1.8 million should be forfeited.

• Special assessment: $100 per felony count, or $1,900, to U.S. District Court in Denver.

smithje@RockyMountainNews.com or 303-954-5155

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