Former Qwest Communications International Inc. Chief Executive Officer Joseph Nacchio insisted on telling analysts the company could meet revenue targets that were later revised, an ex-finance chief testified.
Nacchio, on trial for insider trading, ignored pleas not to respond to a 2001 Wall Street Journal article describing a glut in fiber-optic cable that caused Qwest's stock price to fall and instigated a call with analysts, former Qwest Chief Financial Officer Robin Szeliga told a federal jury in Denver Monday.
"He told me he was going to confirm guidance for 2001" on the telephone call in June of that year, Szeliga said. "I cautioned him against doing it," she said. "I was not comfortable with him confirming or asserting that we were going to make the quarter" revenue estimates.
Prosecutors accuse Nacchio, 57, of selling $101 million in Qwest shares from January to May 2001, before the stock price plunged, based on inside information that the company would miss its revenue targets. To win a conviction, prosecutors must prove Nacchio traded on significant, non-public information and knew it was wrong to do so.
Nacchio faces a maximum sentence of 10 years in prison and a $1 million fine on each of 42 counts against him if he's convicted.
Nacchio indicated he was going to make the conference call to financial analysts during a "lengthy argument" he had with Szeliga when she was at her parents' home in Pennsylvania, she testified Monday. Ignoring her advice, Nacchio made the call the following day, she said.
Nacchio was warned in late 2000 that 2001 revenue estimates of between $21.3 billion and $21.7 billion would fall short by $1 billion, Szeliga testified. After his conference call with investors, Qwest cut its projected revenue for the year to $20.5 billion, a reduction of $1 billion equal to the shortfall estimated more than six months earlier, Szeliga said.
Szeliga also told the jury how she violated Qwest's insider trading policies and pleaded guilty in 2005 to felony insider trading charges linked to an accounting scandal at the company. She has cooperated with an investigation of Qwest, the No. 4 U.S. phone company, and the government's prosecution of Nacchio.
Earlier Monday, Szeliga told the jury how Nacchio rejected explanations from heads of Qwest's business units that they couldn't meet revenue targets set by financial planners under his direction.
Szeliga said Betsy Bernard, the head of Qwest's National Mass Markets unit in 2000, reported that she couldn't meet targets set for her unit. Justice Department lawyer Colleen Conry asked Szeliga how Nacchio reacted.
"His response was she needed to go back and find a way to make the target," Szeliga said.
Nacchio denies the insider trading charges, arguing he believed Denver-based Qwest's public projections were accurate, and that he had to sell stock because Qwest directors wouldn't extend options that were due to expire.
Szeliga admitted selling 10,000 Qwest shares in 2001 for $410,000, reaping a pre-tax profit of $125,000. She agreed to pay $125,000 in restitution to the U.S. Securities and Exchange Commission's Qwest victim fund.
Last year, she was sentenced to two years' probation, including six months of home detention, and fined $250,000. She could have gotten a 10-year prison term.
U.S. District Judge Walker Miller accepted the government's request for leniency in passing sentence.
Contributing: David Voreacos; Cary O'Reilly