Day 9 Afternoon Session: Mohebbi continues

Afshin Mohebbi’s direct examination continued this afternoon. Stricklin began by showing a Q1 revenue update for the year 2001, in which Mohebbi described that the company was facing a 19% shortfall in recurring revenue growth, and a 13% increase in reliance on IRUs. When asked about Nacchio’s reaction to this presentation, Mohebbi said, “He was visibly disappointed in terms of the results and what people had told him they were going to do versus the results.”

In an apparent assault on Nacchio’s credibility, Stricklin asked Mohebbi about the terms of his compensation after being promoted in 2001. Mohebbi stated that Nacchio indicated to him that there would be stock options as part of his new compensation package. When questioned about the strike price of these grants, Mohebbi said that Nacchio only briefly discussed the price, but told him that they would “be in the same boat.” From the questions, it was clear that Stricklin wanted to bring out that in fact Mohebbi had not received comparably priced options, suggesting that he had been mislead by Nacchio. Objections by Stern and a lengthy sidebar shut down that line of questioning. After an attempt to discuss the value of Mohebbi’s option packages and his reasons for not exercising those options met the same fate, Stricklin abruptly rested.

Stern scored two points early in his cross examination of Mohebbi. First, after revisiting the Q1 2001 revenue update, Stern was able to get Mohebbi to admit that while Qwest’s estimates of the year’s earnings were behind the original budget, the number was still within the range of earnings the company’s public guidance. Stern then turned to the number of meetings Mohebbi had with Stricklin and other federal investigators prior to taking the stand. Mohebbi met with Stricklin around 16 times, with nine of those meetings taking place in 2007, no doubt an indication of the importance of this witness to the government.

The rest of today’s questioning primarily focused on the financial projections provided by Donaldson, Lufkin, and Jenrette (DLJ), the investment bank that advised Qwest on its merger with USWest. While methodically going through various internal Qwest documents and SEC filings, Stern repeatedly tried to get Mohebbi to acknowledge that the guidance given to the public was based on the forecasts developed by DLJ. Mohebbi repeatedly answered that he had no involvement in the process of developing financial projections, a point that Stern used effectively later on.

Towards the end of the day, Stern emphasized the fact that Mohebbi had virtually no role in the financial estimate process. This led Stern to ask him if Nacchio was indeed accurate in telling Mohebbi that financial estimates were not part of his job while he was sending memos regarding the company’s 2001 earnings targets. Mohebbi simply replied, “That’s true.”

The trial broke today at 4:00 pm, a bit earlier than usual, to permit celebration of Passover and will resume tomorrow morning at 8:45 am with the continuation of Mohebbi’s cross examination.