DENVER - Joe Nacchio, the former Qwest Communications chief who was forced to resign during a multibillion-dollar accounting scandal, was sentenced to six years in prison Friday for illegally selling $52 million in stock while not telling investors that his telecommunications company faced serious financial risks.
Nacchio was ordered to forfeit the $52 million within 15 days. He received a maximum $19 million fine and two years' probation after he serves his sentence. Once a federal prison is chosen for him, he is to report within 15 days. He was denied bail while he appeals his conviction.
"The crimes the defendant has been found guilty of are crimes of overarching greed," declared U.S. District Judge Edward Nottingham as Nacchio stood before him.
Nacchio, 58, a former AT&T executive, is the latest in a string of former top-level executives to be convicted in recent years in corporate fraud scandals at companies such as Enron and WorldCom. He had faced a maximum of seven years and five months in prison.
The case grew out of the accounting scandal in which federal regulators said Qwest falsely reported fiber-optic capacity sales as recurring instead of one-time revenue between April 1999 and March 2002. They said the practices allowed the company to improperly report about $3 billion in revenue and helped it acquire former Baby Bell US West Inc.
Prosecutors adopted a narrow focus on insider trading against Nacchio, indicting him for 42 stock sales completed in the first five months of 2001 - a time when business unit managers were warning that Qwest faced financial risks because it was increasingly relying on money from one-time sales to meet revenue targets.
A jury deliberated six days in April before acquitting Nacchio on 23 counts and convicting him on 19 for transactions that occurred in April and May 2001 - after Qwest released its 2001 first-quarter results but didn't tell investors about the revenue situation.
Thousands of investors lost money when Qwest Communications International Inc.'s stock price plummeted from more than $60 a share in 2000 to just $2 a share in 2002. The scandal forced Qwest, a primary telephone service provider in 14 mostly Western states, to restate $2.2 billion in revenue.
The Securities and Exchange Commission has requested court permission to begin distributing $267 million to investors who purchased Qwest stock between July 27, 1999, and July 28, 2002. The money was collected in settlements of lawsuits involving Qwest accounting practices. The SEC hoped to begin distributing checks on Tuesday to investors who submitted valid claims.
"The judge nailed it absolutely," said Mimi Hull, president of The Association of US West Retirees, which represents retirees from the company Qwest absorbed. She said 17,000 Qwest workers were laid off during Nacchio's two-year tenure, and Qwest's stock plummeted, shrinking employee and retiree investment accounts.
"Justice worked here," said U.S. Attorney Troy Eid.
Nacchio was indicted in December 2005, nearly three years after then-Attorney General John Ashcroft announced the first indictments in the Qwest investigation, calling it an example of the government's intolerance of white-collar crime.
Nacchio's legal issues are far from over. A civil fraud case is pending against him and four other one-time Qwest executives alleging they orchestrated financial fraud that led to the scandal. A trial isn't expected to be set until 2009.
At Friday's hearing, Nottingham denied a defense motion for an acquittal and new trial, dismissing claims that jurors were swayed by damaging pretrial publicity.
"This was an extraordinary jury," Nottingham said. "In this court's view, the verdict takes a rational view of the evidence."
Nottingham also dismissed Nacchio's pleas for leniency because of the health of his son David, who attempted suicide seven years ago. Defense attorney Herbert Stern argued that Nacchio was critical to his son's well-being, and Nacchio wiped away tears as Stern described his son's mental health problems.
"The choice hasn't always involved putting this young man at the very top of his list," Nottingham said of Nacchio.
Nacchio, who declined a chance to testify during Friday's hearing, approached the bench at the very end, saying he wanted to speak. Nottingham told him he'd had his chance. "I promise it will be respectful," Nacchio replied.
The judge then recessed the trial, leaving Nacchio standing there.