DENVER (AP) — Joe Nacchio, the former Qwest Communications chief who was forced to resign during a multibillion-dollar accounting scandal, was sentenced to six years in prison yesterday for illegally selling $52 million in stock while not telling investors that his telecommunications company faced serious financial risks.
Nacchio was ordered to forfeit the $52 million within 15 days. He received a maximum $19 million fine and two years’ probation after he serves his sentence. Once a federal prison is chosen for him, he is to report within 15 days. He was denied bail while he appeals his conviction.
Nacchio, 58, a former AT&T executive, is the latest in a string of former top-level executives to be convicted in recent years in corporate fraud scandals at companies like Enron and WorldCom. He had faced a maximum of seven years and five months in prison.
The case grew out of the accounting scandal in which federal regulators said Qwest falsely reported fiber-optic capacity sales as recurring instead of one-time revenue between April 1999 and March 2002. They said the practices allowed the company to improperly report about $3 billion in revenue and helped it acquire former Baby Bell U S West Inc.
Prosecutors adopted a narrow focus on insider trading against Nacchio, indicting him for 42 stock sales completed in the first five months of 2001 — a time when business unit managers were warning that Qwest faced financial risks because it was increasingly relying on money from one-time sales to meet revenue targets.
A jury deliberated six days in April before acquitting Nacchio on 23 counts and convicting him on 19 for transactions that occurred in April and May 2001 — after Qwest released its 2001 first-quarter results but didn’t tell investors about the revenue situation.
Thousands of investors lost money when Qwest Communications International Inc.’s stock price plummeted from more than $60 a share in 2000 to just $2 a share in 2002. The scandal forced Qwest, a primary telephone-service provider in 14 mostly Western states, to restate $2.2 billion in revenue.
The Securities and Exchange Commission has requested court permission to begin distributing $267 million to investors who bought Qwest stock between July 27, 1999, and July 28, 2002. The money was collected in settlements of lawsuits involving Qwest accounting practices. The SEC hoped to begin distributing checks on Tuesday to investors who submitted valid claims.
“The judge nailed it absolutely,” said Mimi Hull, president of the Association of U S West Retirees, which represents retirees from the company Qwest absorbed. She said 17,000 Qwest workers were laid off during Nacchio’s two-year tenure, and Qwest’s stock plummeted, shrinking employee and retiree investment accounts.
“Justice worked here,” said U.S. Attorney Troy Eid.
Nacchio, who declined a chance to testify during yesterday’s hearing, approached the bench at the end, saying he wanted to speak. Judge Nottingham told him he had had his chance. “I promise it will be respectful,” Nacchio replied.
The judge then recessed the trial, leaving Nacchio standing there.
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