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Qwest's early signs of trouble.

Documents unsealed in federal court recently indicate that former Qwest CEO Joseph Nacchio was notified in 2001 that Qwest could have trouble meeting its revenue forecasts. This could add credibility to the prosecution's argument that Nacchio engaged in insider trading in the first half of 2001, and sold $100 million worth of Qwest stock once becoming aware that the company's business was faltering. A memo sent by Qwest's then-president Afshin Mohebbi stated, "[if] we don't crank up recurring growth by April, we got big problems" in reaching sales targets in the first quarter of 2001.

Lawyers for the defense claim Nacchio's case could expose secret government contracts that might have compensated for some of the shortfall, but federal prosecutors argued in separate, recently unsealed documents that Nacchio should not be allowed to call upon laws governing national secrets as part of his defense. They contended that there was no need for the court to know what government agencies had contracts with Qwest, only what their values were.

In addition, "Even if Qwest had material federal classified contract prospects that might offset the pervasive weakness in its commercial business, the defendant would still be under a duty to disclose or abstain and would be guilty of the crime of insider trading," declared U.S. attorney William Leone in the government's brief. Defense lawyers indicated in court documents that the government must prove that securities fraud was indeed occurring at Qwest with Nacchio's knowledge before he sold off his company stock.

Source: New York Times
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Title Annotation:Risk Reporter
Publication:Risk Management
Article Type:Brief article
Geographic Code:1USA
Date:Mar 1, 2006
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