Former CEO of Qwest May Soon Face Charges

by Greg Farrell USA Today

Federal prosecutors in Colorado have filed court papers that indicate they could be close to bringing criminal charges against Joe Nacchio, the hard-charging former CEO of Qwest.

In a motion filed late Wednesday in federal court in Denver, acting U.S. Attorney William Leone asked a judge to stay a civil lawsuit that the Securities and Exchange Commission filed earlier this year against Nacchio and other former Qwest executives. The judge granted the request.

The motion comes just two weeks after prosecutors secured a guilty plea from Robin Szeliga, Qwest's former CFO. Szeliga pleaded guilty to one count of illegal inside trading and agreed to cooperate with the ongoing criminal investigation.

The most likely reason for the prosecutors' request, experts say, is that Nacchio is in the U.S. attorney's crosshairs.

"The only time the Department of Justice asks for a stay is because it is going down the road of returning an indictment," said Jacob Frenkel, a former federal prosecutor now with Shulman Rogers.

Jack Coffee, an expert on securities law at Columbia University, says prosecutors often use the cooperation of CFOs to prepare charges against CEOs.

"If this follows standard operating procedure, she stands in relation to Nacchio as Scott Sullivan stood to Bernie Ebbers," he said, referring to WorldCom's former CFO and CEO.

Nacchio's attorney, Charles Stillman, and the U.S. Attorney's Office in Denver did not return calls. In March, a Nacchio spokeswoman said he would fight the SEC charges vigorously.

Like other telecommunications companies, Qwest's stock was a highflier during the Internet bubble. But after the bubble burst, Qwest sustained huge losses. It also admitted to some overly aggressive accounting maneuvers, and eventually restated its earnings downward by some $3 billion.

The disclosure of accounting irregularities drew the interest of the SEC as well as the U.S. attorney in Denver. The SEC accused Nacchio and six other executives of orchestrating a "massive fraud" by booking phony revenues and relying on other accounting machinations. The SEC accused Nacchio of reaping $176 million in illegal inside-trading profits.

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