Day 3: Nacchio's Involvement in Talking to the Street

Day 3 began with the continuation of the government's first witness, Lee Wolfe, head of Investor Relations for Qwest during the period of the indictment.  Leo Wise conducted the examination.  Wolfe, who came across as credible, if not occasionally confusing, emphasized the substantial role played by Nacchio in communicating with investors, analysts and the public, including his decision to reaffirm previously published guidance on the company’s earnings for the year on numerous occasions. Major points from Wolfe’s testimony:

• Nacchio had nearly absolute control over all investment community relations and communications.

• As competitors lowered their guidance, Nacchio consistently represented that Qwest that different from these other companies and not susceptible to the same problems (identifying better products and better management as the reasons);

• On two occasions (December 2000 and June 2001), under Nacchio’s oversight, Qwest issued press releases and held conference calls reacting to events that were having a negative impact on the company’s stock price. On both occasions, Nacchio reaffirmed that the company would make its annual earnings forecast. Specifically, Wolfe testified that Nacchio said that, “Qwest was unaffected by the other issues in the industry” and Qwest “with its unique product array and management” was able to meet the projections.

• By April 2001, investors and analysts were becoming increasingly “frustrated” and skeptical of Qwest earnings guidance, specifically, how Qwest would “make its numbers,” and this was known to Nacchio.

In perhaps the most poignant moment of the morning, Wolfe disclosed that he had all but engaged in insider trading by selling shares during the first four months of 2001 (earning $646,000). When asked why he stopped trading, despite having 25,000 stock options remaining (worth $825,000), he replied that he knew “deep down” that he had material non-public information, specifically, that they were using “one-timers to make our numbers.” He testified further; “I knew it was wrong.” The remaining options were never exercised and expired.

Court resumes at 1:30.