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Optical/IP

Nacchio Found Guilty

After six days of jury deliberations, former Qwest Communications International Inc. (NYSE: Q) CEO Joseph Nacchio was convicted of insider trading yesterday.

Nacchio was found guilty on 19 of the 42 counts of insider trading that he was charged with, each of which carries a potential 10 years in prison and $1 million fine. Nacchio was found not guilty of the remaining 23 counts.

U.S. District Judge Edward Nottingham scheduled sentencing in the case for July 27. Pending sentencing, Nacchio has been released on $2 million bond. He is also faces possible forfeiture of assets, which will be determined by Judge Nottingham after the trial.

Nacchio had been charged with 42 counts of insider trading related to $101 million worth of stock sales he made in 2001. He was indicted by a grand jury in December 2005, and the trial began on March 19.

During the 15-day trial, the prosecution brought a series of Qwest executives and Wall Street analysts to the stand to testify that Nacchio ignored warnings about the company's finances, failed to disclose material information to the public, and then sold stock at a profit based on nonpublic information. (See Qwest Memos Warned of Weakness, Nacchio Advisor Stirs Up the Defense, and Nacchio Qwoted Qwestionable Qwest Targets.)

In contrast, the defense characterized Nacchio as an unabated optimist that believed in Qwest's ability to reach its financial targets despite the warnings of company naysayers. (See Nacchio Update: The Jury's Out.)

In the end, the government's case won out, and the former CEO was found guilty for making 19 trades in April and May 2001 worth $54 million. These trades came after Nacchio received warnings from executives that one-time Indefeasible Rights of Use (IRUs) were drying up.

According to the Denver Post, jurors convicted Nacchio on charges related to trades he made after failing to share these warnings with analysts and investors on an April 24 earnings call.

"Convicted felon Joe Nacchio has a nice ring to it. I couldn't be happier that after five and a half years, justice has finally been served," said U.S. attorney for Colorado, Troy A. Eid said, as reported in the New York Times.

According to news sources, defense attorney Herbert J. Stern said he would appeal the decision.

Nacchio was CEO of Qwest from 1997 to 2002 but was forced out after the Securities and Exchange Commission (SEC) began looking into the company's accounting practices. Soon after, the SEC and Department of Justice filed suits against the company for falsely reporting and artificially inflating revenues with questionable capacity swaps.

Qwest restated revenues and earnings for 2000 through 2002, reducing both by about $2.5 billion, and agreed to pay $650 million to settle civil charges levied by the SEC. (See Nacchio Leaves Qwest, Prosecutors' Party at Qwest, and Qwest's Future Qwestionable.)

Nacchio still faces civil charges filed against him by the SEC.

— Ryan Lawler, Reporter, Light Reading

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