Comments on the Closing by John Holcomb, Professor, Daniels School of Business

The closing arguments of Wednesday, April 11^th were a study in contrasts. The defense closing by Herbert Stern lasted four hours, on top of his hour and a half on Tuesday and was rambling and disjointed, continuing the pattern of the previous day. The prosecution’s closing rebuttal lasted two hours and was structured and well organized. While the defense closing seemed like a car slowly running out of gas on a slight downhill slope, the prosecution’s closing began as a bullet train. Mr. Stern’s closing risked boring the jury with long pauses (when does a dramatic pause become a delay of game?), while Mr. Stricklin’s risked leaving the jury at the station as his train pulled out. Stern would occasionally have to recapture the jury’s attention, while Stricklin slowed down somewhat and the jury gradually adjusted to his pace. In the end, they were riveted by his brilliant closing, as was the entire courtroom. Mr. Stricklin is a great advocate in the making. Meanwhile, the jury could only demonstrate patience as Mr. Stern’s closing finally wound slowly and thankfully to a halt. Mr. Stern had begun his four hours on Wednesday by repeating much of his arguments from Tuesday, without offering an explanation to the jury. Perhaps he felt he needed to re-emphasize or clarify those arguments.

Stricklin clearly won the day. Whether the prosecution team will win the minds of the jurors is another question, but the Nacchio camp is probably less optimistic than they may have been last week. Stricklin served as the hammer to nail down the key arguments after Colleen Conry’s meticulous and persuasive presentation in her closing argument of Tuesday. Once again, the prosecution carried the day on substance, and Stricklin’s style also seemed to have more appeal to most in the courtroom. While some may have become drowsy at Stern’s laborious pace, the adrenaline began to flow for everyone under the force of Stricklin’s arguments, pace, and engaging nature.

While Mr. Stern read extensively and ad nauseaum from the trial transcript, flipping through pages often without drawing an inference or conclusion, Mr. Stricklin paraphrased testimony and referred to facts from memory, while his eyes did not stray from those of the jurors. He would walk from the podium to the jury box and occasionally look directly at Joseph Nacchio and point at him when drawing an incriminating conclusion. Stricklin was in command of the courtroom throughout his closing, and all eyes were on him. While Mr. Stern would often not headline an argument he might be developing, Mr. Stricklin would label it, develop it often with several lines of reasoning, and then clinch it. While addressing an issue, Mr. Stern would often say, “I’ll get back to that” or “I’ll have more to say about that later,” but it was never clear that he ever did.

Mr. Stern wisely relied more heavily on technology on Wednesday than the previous day, but he was not entirely comfortable and still often lifted large poster boards with the same facts or figures onto an easel. Precious seconds would also elapse as he called up a document and page number to be shown on the computer screens, and his team would then locate the document, while Stricklin’s team was perfectly in sync. When Stricklin referred to a statement or chart in his closing and would say, “as you can see on the screen,” there it was instantly. Everything flowed smoothly.

As for substance, while Mr. Stern deliberately and slowly developed his arguments, Mr. Stricklin addressed and disposed of each argument economically. He then moved on to his own compelling arguments at the end his close. He also had the good sense to spend the most time and argumentation on the most crucial issues. He was at his most persuasive in dealing with the issue of backdating the authorization to sell shares. That was a crucial issue since it related to the all-important burden of demonstrating intent. The prosecution team had earlier made it clear that the backdating related to a time prior to Nacchio’s acquisition of material nonpublic information. To engage in the actual sale after gaining the negative information from other top officers of Qwest is one element of the crime. That Nacchio then backdated the authorization shows that he realized his own wrongdoing. The defense finally dealt with this important issue only in Mr. Stern’s closing, which Stricklin pointed out, and he then proceeded to skillfully refute the point made by the defense and referred to another incriminating document as well. Nacchio had actually deleted a paragraph saying he had no material nonpublic information from a boilerplate document before signing it.

A high point of Stricklin’s closing statement was his further development of the intent issue. He argued that one could infer Nacchio’s intent to commit criminal acts from both words and actions. While Stricklin acknowledged it is often tough to tell anything from words, based on the tendency of criminals to lie, he noted that Nacchio did make incriminating statements in unguarded moments, with phrases such as “screw em, tell em to buy,” and “say what you gotta say to get it done.”

Even more persuasive on the issue of intent was Nacchio’s conduct, and key to that was the backdated document. While Mr. Stern had urged the jury to consider Nacchio’s errors of forecasting to be in good faith, Stricklin argued that the backdating drives a stake through the good faith defense and that it constitutes a further artifice of fraud.

Beyond the backdating though was the entire trail of conduct in 2001. The story and spin to investors really started after Qwest stock tumbled 25%, Stricklin maintained. Nacchio raised guidance to analysts and investors a number of times during that time period. While Mr. Stern attempted to blame Qwest’s fortunes on negative economic events in the telecomm sector, all of Qwest’s competitors acknowledged the industry problems and lowered guidance while Nacchio continued to affirm positive guidance. The company’s positive financial reports had rested on the house of cards of nonrecurring revenue in 2000, and when Nacchio realized the necessary shift to recurring revenue would not occur in late 2001, Stricklin pointed out that Nacchio blew up. He had been urging the Street and others to continue to buy Qwest stock even as he was selling his options during that period, something that his other top officers like Mr. Mohebbi would not do. Mr. Stricklin pointed out that Nacchio quit his 10b5-1 plan of gradual selling during this period so he could sell seven times that amount of shares. Further, he declined the board’s offer of five million more stock options with a strike price of $39 in February of 2001, realizing he may never be able to sell those options at a gain. In October of that year, he instead negotiated to receive 7 million stock options at a much lower strike price.

Stricklin also effectively refuted other arguments posed by Stern. While Mr. Stern had argued that the positive forecasts for Qwest came more from DLJ (Donaldson, Lufkin & Jenrette) rather than from Nacchio, Stricklin pointed out that investment banks underwriting a merger always give positive forecasts and that those forecasts were issued far in advance of Qwest’s problems in 2001. Mr. Stern had argued that the price of growth shares was irrelevant to Nacchio in his decision to sell those shares, since by contract he would get the same amount money whatever the price, while Stricklin argued that just wasn’t true.

While Stern maintained that there were other factors causing Nacchio to sell stocks, such as diversification and tax savings, Stricklin pointed out that Nacchio was well diversified and maybe should be less so to demonstrate faith in Qwest and that share withholding was an alternative to actually selling stocks to accomplish tax savings. Mr. Stern had also argued that if Nacchio really wanted to protect himself from losses due to Qwest’s falling stock price, he would have sold all of his stock. Mr. Stricklin labeled the argument absurd, since insider selling is always a danger signal to other investors, and that Nacchio had to act incrementally in order not to totally destroy the company. Mr. Stricklin also reminded the jury that the Qwest board never ordered Nacchio to sell his shares and that after exercising options, Nacchio could have held them forever without selling.

Finally, toward the end of his closing, Mr. Stricklin said he felt obligated to deal with the sensitive issue of Mr. Nacchio’s family tragedy and his son’s attempted suicide. Stricklin might have simply ignored the issue, thinking the jury might as well, but he instead addressed it quietly, slowly, and delicately. He was obviously concerned that emotions could sway the jury in Nacchio’s favor, even though Stricklin acknowledged that the judge would instruct the jury to not allow emotions to influence their verdict. Stricklin said he felt some obligation to address the issue since the only two witnesses called by the defense (Anschutz and the Benedictine monk) focused on that emotional and personal issue. Stricklin said he would only focus on Nacchio’s conduct at the time of the tragedy. He pointed out that not only did Nacchio travel back and forth to Denver often and not resign during that time period, but he also told his broker 13 times during January and February of 2001 to sell portions of his Qwest stock, engaging in the same pattern of insider trading violations.

Stricklin wound up his testimony by maintaining that the key defense for Nacchio was to elevate him to a victim. Rather than being willing to accept personal responsibility for his actions, Nacchio instead is blaming DLJ, his own board of directors and other “not so good friends” for his troubles. Stricklin reminded the jury in his parting words that at every point when Nacchio sold shares or options before another Qwest decline, there were many investors on the buy side who were harmed. This clearly violated Nacchio’s duty of trust to his own investors. Stricklin said it was certainly valid to engage in entrepreneurial activity just for money, if one was so motivated, but that did not include the right to commit crimes to do so.