Day 11 Morning Session: The prosecution winds down its case in chief

Drake Johnstone’s testimony wrapped up this morning. During his cross examination, Speiser repeatedly became frustrated with Johnstone’s manner of constantly rephrasing the question or refusing to give a yes or no answer. The situation eventually devolved to a point that Judge Nottingham berated Johnstone for his failure to answer the questions being asked. This tone carried throughout the rest of the cross, which ended after Speiser attempted to introduce another analyst report on the significance of IRUs, engendering an immediate objection and a lecture from Judge Nottingham that the approach was “unbelievable”.

Another financial analyst took the stand for the rest of the afternoon. Prashant Khemka of Goldman Sachs was the firm’s telecom sector analyst for the Asset Management Group in 2000-2001. In a methodical and organized direct, Leo Wise began with an explanation of Khemka’s research into Qwest. Khemka testified that during a meeting with investors in March 2001, the head of Qwest’s wireless unit said “it would be difficult to meet the targets for the wireless segment for the year.” Khemka went on to state that after Nacchio came back to the meeting (he was not there when the statement was made) he “pounded the table” while emphasizing that all business segments would meet their numbers. When asked about another investor meeting around the same time period, Khemka testified that Nacchio asserted, “If I can get the revenues, I can figure out a way to get the margins.”

One major topic of Khemka’s testimony was a letter he wrote to Nacchio. This letter asked a series of poignant questions about Qwest and its ability to meet earnings guidance. Among other things, the letter stated: “But now, the lack of transparency is going to hurt you because investors don’t know how many cockroaches you still have in your bag.” When asked the reason why this letter was prepared, Khemka explained, “We had been raising questions all along and not getting answers to them.” He also noted that Nacchio never replied to this letter.

Khemka’s direct ended with a very interesting bit of testimony. In January 2002, Khemka had the opportunity to speak to Nacchio at an investor’s meeting. Khemka stated that he asked Nacchio, “How do you expect to restore credibility in Qwest and the management with investors?” He described Nacchio’s response to be, “First of all let me give you a piece of free advice. Don’t believe a word that management says at the time of a merger. Management had to say things to get the merger done.”

Speiser immediately began his cross examination by getting Khemka to confirm that Nacchio was smiling while making the preceding statement; an apparent attempt to infer that he was speaking in jest. The remainder of the cross was primarily an attempt to show that even though Khemka had a great deal of concerns regarding Qwest, he didn’t bring up the issue of IRUs during a number of face to face meetings with Nacchio throughout the first half of the year. However, this line of questioning was repeatedly frustrated by Khemka’s lack of recollection.

The last part of the morning session was spent with the prosecution’s final witness, Dana Chamberlain, who is a financial analyst with the US Attorney’s office in Denver. James Hearty began his direct examination laying foundation for Chamberlain’s later testimony, which will cover a series of charts she prepared describing Nacchio’s sales of Qwest stock in 2000 and 2001.

This afternoon will see the wrap up of the prosecution’s case in chief. The remainder of the afternoon will be devoted to various motions by the defense, including motions for a mistrial.

The defense is expected to present its first witness tomorrow morning.