Day 10: Analyst and Attorney Bolster the Government’s Case

Among a parade of government witnesses during the afternoon, an attorney and an analyst provided compelling testimony. 

Gregory Patti, is a partner at O'Melveny & Meyers.  It was his task, on December 8th, 2000 (as assigned by Yash Rana, Qwest’s associate general counsel), to provide the legal language that would allow Joe Nacchio to certify that he did not have material nonpublic at the time he sold his “growth stock” of $14 million in early 2001.  O’Melveny & Meyers also produced Drake Tempest, the general counsel of Qwest and Rana.  Patti testified that he prepared the requested language and emailed the language to Rana on December 10th, 2000.  

Cliff Stricklin, counsel for the government, had Patti compare his draft language with the final certification signed by Nacchio.  Except for a few minor changes, much of Patti’s suggested language was incorporated into the signed certification.  Although the language was drafted in December, the certification shows a date of November 3rd, 2000 which bolster’s the government’s assertion that the document was backdated to a time before Nacchio had material nonpublic information, particularly the information received in early December of 2001 about Qwest's worsening financial condition.   Patti, however, admitted on cross-examination that he did not have knowledge of the communications between Rana and Nacchio during this period.

Named as one of the top analysts in 2001 by the Wall Street Journal, Drake Johnston provided evidence about the materiality to investors of Nacchio's failure to disclose the extent of the nonrecurring capacity sales (the “gap fillers”).  

As a stock research analyst, Drake Johnstone worked for Davenport Co., a company specializing in retirement planning for residents residing in Virginia.  He first testified that he recommended that his clients “buy” stock in Qwest because the first quarter growth of 12% exceeded the rate of the prior quarter.  With Nacchio continuing to be "bullish" in April about "making the numbers" for the rest of 2001, Johnston saw nothing that would cause him to doubt this prediction. 

These views changed, however, with the statement released in August of 2001 indicating that Qwest only “made the street number” for the first quarter of 2001 through capacity sales of over $400 million.  Johnston testified that, as a consequence, he issued a report to the company’s customers indicating that the growth rate for the first quarter, without the nonreoccuring capacity sales, was only 7.9%.  Based upon this new information, he changed his Qwest “buy” recommendation to a “sell” recommendation.  However, this change in recommendation was redacted from Johnston’s report and other statements of opinion.  Judge Nottingham had previously ruled that these opinions were not admissible because they were not timely disclosed by the prosecution to Nacchio’s attorneys.

The afternoon clearly showed that the prosecution nearing an end to its case.   After the jury was excused at the end of the day, Conry told the judge that tomorrow the government has two witnesses more and will then rest its case.  Judge Nottingham told Stern to be ready to present Nacchio’s first witness.  Stern also assured the judge that any testimony related to potential government secret contracts would not occur before next week.