Ex-exec: Experts doubted former Qwest CEO Nacchio

Joseph Nacchio, the former Qwest chief executive accused of insider trading, knowingly repeated unreliable growth forecasts in 2000 and 2001, a former investor-relations chief testified.

Nacchio projected revenue growth of 15 to 17 percent a year, without disclosing that the increase relied on one-time sales of network capacity, Lee Wolfe told jurors Wednesday in the federal-court trial in Denver. Investors and analysts became skeptical of Nacchio's claims that revenue from Internet and data services drove growth, he said.

"They were becoming increasingly accusatory in terms of, 'What are you guys doing that enabled you to beat the numbers?' " said Wolfe, the trial's first witness.

"There was a suspicion that there was something funny here. They would vent to me that he was not forthcoming," Wolfe said.

Prosecutors accuse Nacchio, 57, of selling $101 million in Qwest shares from January to May 2001, before the price plunged, based on internal warnings that the company wouldn't be able to meet its targets. Nacchio denies he engaged in insider trading and said he believed Qwest's public projections were accurate.

On cross-examination, Nacchio attorney John Richilano suggested that Wolfe tailored his testimony to avoid prosecution on insider-trading charges. Wolfe said prosecutors agreed not to charge him as long as he told the truth.

"I had quite a crisis of conscience over this whole thing," Wolfe said. "I was concerned about being prosecuted."

Nacchio faces up to 10 years in prison on each of 42 counts against him. Nacchio and Wolfe worked at Qwest, now the fourth-largest U.S. phone company, from 1997 to 2002, after working at AT&T.

Wolfe said he learned in meetings in late 2000 and early 2001 that Qwest wasn't reaching Nacchio's targets for Internet and data-services growth.

Wolfe said he implored Nacchio not to reaffirm the revenue growth rate of 15 to 17 percent before a conference call announcing Qwest's first-quarter earnings in April 2001.

"I said there were problems with growth," Wolfe said. "I'm not sure that he responded to my concerns."

Nacchio lost credibility with investors after reducing, without explanation, the forecast for earnings before interest, taxes, depreciation and amortization to 17 percent from 20 percent, Wolfe said. His credibility eroded more in September 2001, when Qwest cut its revenue forecast, Wolfe said.

Qwest's shares reached a closing high of $64.50 in March 2000 on expectations that use of its fiber-optic network would surge. Nacchio sold the last of his shares in May 2001 at a price of $38.25. Shares fell to $1.11 in August 2002, meaning Qwest lost more than $100 billion in market value.

Wolfe began testifying Tuesday. He said Nacchio's "golden rule" was: "You never did anything to make the stock price go down."

He testified Wednesday that in early 2001, he exercised options to buy 20,000 shares and sold them for $646,000. He allowed options to buy an additional 25,000 shares to expire, he said.

"I knew deep down that I had material information in the form of the fact that we were using one-timers to make our numbers," Wolfe said. "I knew it was wrong. It was a crisis of conscience to say I should not do that anymore. I knew I shouldn't have done it before."

In coming days, former Chief Financial Officer Robin Szeliga, who pleaded guilty to insider trading, and former President Afshin Mohebbi are expected to give testimony similar to Wolfe's.