- The Washington Times - Tuesday, December 20, 2005

DENVER (AP) — Former Qwest Communications Chief Executive Officer Joseph Nacchio was indicted yesterday on 42 counts of insider trading, accusing him of illegally selling off $101 million in stock after privately learning the company might not meet its financial goals.

Mr. Nacchio, 56, appeared in court a few hours after the indictment was announced and pleaded not guilty before being led away in handcuffs. He said nothing, but defense attorney Herbert Stern told reporters, “We welcome the opportunity to put all this speculation and innuendo to rest.”

The criminal charges are the first against Mr. Nacchio in the government’s lengthy investigation of Qwest Communications International Inc., the Denver-based telephone service provider for 14 mostly Western states that only now is recovering from a multibillion-dollar accounting scandal.

The charges come nearly three years after then-Attorney General John Ashcroft announced the first indictments in the Qwest investigation, calling it an example of the government’s intolerance of white-collar crime.

With Mr. Nacchio’s indictment, U.S. Attorney William Leone said, that investigation is nearly complete.

“It’s important for corporate executives to recognize that when they’re in possession of information that the general public is not in possession of, they’re under a duty to abstain from trading,” Mr. Leone said. “Failure to honor that rule impairs confidence in our markets.”

U.S. Magistrate Patricia Coan said Mr. Nacchio could be released on $2 million bond but it was not clear when that would occur. Prosecutors did not seek to have him detained, though Mr. Nacchio was ordered to surrender his passport as a condition of his release.

Each count carries a penalty of up to 10 years in prison and a $1 million fine. Mr. Nacchio also faces fraud charges filed by the Securities and Exchange Commission and a number of shareholder lawsuits.

The indictment accuses Mr. Nacchio of selling $101 million worth of company stock in the first five months of 2001, when he is accused of having insider information. The sales took place in 42 transactions ranging from $191,000 to $13.6 million each.

The indictment blames Mr. Nacchio for “a manipulative and deceptive” scheme to commit fraud and says he was “specifically and repeatedly warned” about the financial risks facing his company just five months before the stock trades in question.

The government has said in both civil and criminal complaints that Qwest and some of its former executives participated in a massive financial fraud between April 1999 and March 2002 by falsely reporting one-time sales or trades of capacity on its fiber-optic cables as recurring revenue.

The fraud allowed Qwest to improperly book approximately $3 billion in revenue that eased its 2000 merger with U.S. West Inc. and it allowed various executives to reap millions in “ill-gotten” profits, the government said.

Qwest later restated earnings from 2000 and 2001 to erase about $2.2 billion in revenue.

The indictment said Mr. Nacchio was aware of Qwest’s “extremely aggressive” financial targets and that to meet those targets in 2001 the company would have to significantly boost its flagging “recurring revenue business.”

It said he also knew there wouldn’t be enough revenue from other sources to “close the gap” between Qwest’s publicly stated goals and its actual performance.

Mr. Nacchio has denied any wrongdoing, telling members of Congress in 2002 that he made stock sales believing the company’s financial statements always represented “a full and accurate picture of its financial condition.”

He has already asked a judge to throw out the SEC complaint, saying the accusations are “not the stuff of securities fraud.”

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