Qwest CEO Getting Indicted

Ex-Qwest CEO may face charges next week-sources By Robert Boczkiewicz and Keith Coffman

Prosecutors are seeking a grand jury indictment next week of Qwest Communications International Inc. former Chief Executive Joseph Nacchio for personally profiting from the company's overstated revenue, two people close to the matter said this week.

Nacchio, who left the company in 2002, has been a focus of an ongoing federal investigation by a grand jury that will reconvene next week for the last time this year, the sources said.

Prosecutors are likely to ask grand jurors to hand up an indictment then, said one source close to the investigation.

It was unclear what precise form any charges would take, but a separate source familiar with the investigation said this week that prosecutors aim to indict Nacchio for his alleged role in propping up the telephone company's worth and then selling his shares of its stock at what later proved to be an inflated value.

The U.S. Attorney's office in Denver had no comment on Thursday.

A judge has given prosecutors until December 31 before legal proceedings can resume in civil lawsuits that remain open against Nacchio and other ex-Qwest executives.

This summer, federal prosecutors were granted a suspension of U.S. Securities and Exchange Commission and Qwest shareholder lawsuits to give them more time to complete their criminal probe.

In court filings, U.S. Attorney William Leone had said the stay was required because the SEC case was "directly related to the facts underlying an ongoing criminal investigation."

The fourth-largest regional telephone carrier in the U.S., Denver- based Qwest and its former executives have faced both civil and criminal legal action since the company in 2002 had to restate $2 billion in revenue for 2000 and 2001.

Nacchio has denied any wrongdoing and recently added to his team of high-profile defense attorneys. Among them is former Iran-Contra special prosecutor and federal judge Herbert Stern.

Neither Stern nor Charles Stillman, a New York lawyer who also represents Nacchio, were available for comment on Thursday afternoon.

Six former Qwest executives have been charged criminally in the alleged securities fraud investigation. Robin Szeliga, the company's former chief financial officer, is the highest level executive charged so far.

In July, she pleaded guilty to one count of insider trading and agreed to cooperate with authorities in the investigation, a plea agreement filed in U.S. District Court showed.

In her plea agreement, Szeliga said that Qwest's senior managers were aware that the company was boosting revenue figures through deals unknown to investors. Prosecutors noted in a September court filing that Szeliga "has provided significant information related to the subject of a continuing investigation."

Earlier this month, the second source familiar with the investigation said that two former top-level Qwest executives, chief legal officer Drake Tempest and president Afshin Mohebbi, testified before the grand jury against Nacchio. Mohebbi has been given immunity in exchange for his cooperation.

In January billionaire financier Philip Anschutz, who founded Qwest, and former U.S. Sen. Hank Brown, a former Qwest board member, testified before the grand jury that convenes again next week, a court filing this week showed.

More than a dozen lawsuits have been filed against Qwest and former executives by shareholders, including several large pension funds. The shareholders claim they lost millions when Qwest stock plummeted from a high of over $64 per share in 2000 to a low below $2 per share in


Last month, the company reached a $400 million settlement with some shareholders, but lawsuits against Nacchio remain open.

Last fall, Qwest agreed to pay $250 million to settle a fraud case brought by the U.S. Securities and Exchange Commission. In March, the SEC sued 11 former Qwest executives, including Nacchio, accusing them of fraudulently reporting $3 billion in revenues while omitting $231 million in expenses from the company's books.

The SEC alleges that Nacchio reaped $216 million in "salary, bonuses, stock sales and other compensation" based on the inflated numbers.

Copyright 2005 Reuters Limited.

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[TELECOM Digest Editor's Note: And obviously this will be another very merry Christmas for Mr. Nacchio as well. PAT]
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