Former Qwest CEO Joseph P. Nacchio, convicted of insider trading charges in April and sentenced to six years in prison, is appealing his conviction, the Journal reports.
Full disclosure here: I reported on Nacchio’s shenangans at Qwest for Fortune in 2003, so I’m not unhappy to find the Joe Nacchio saga come to a conclusion with some kind of justice (read: see Nacchio go to jail). Still, the details of the Nacchio prosecution in some ways made me wary. The government’s theory that a CEO is subject to insider trading charges for witholding or misrepresenting material information–the same principle applied to Ken Lay and Jeff Skilling at Enron is an aggressive one, and stretched irresponsibly can put a lot of CEOs in jeopardy for statements that are merely optimistic.
Nonetheless, any qualms I might have had evaporated when I read this startling bit of revisionism in Nacchio’s appeal:
Many shareholders lost paper fortunes, employees lost jobs as the company downsized, and all demanded someone to blame. That person, it turned out, was the man who built Qwest into a telecommunications giant, and who, despite the vicissitudes of the stock market and the economy, believed more than anyone else in the company’s future.
Let’s unpack this. First, “the man who built Qwest into a telecommunications giant.” This is preposterous. Qwest still exists for one reason only: Nacchio was sufficiently savvy to use Qwest’s vastly over-hyped and inflated stock to buy the Baby Bell US West, a real telecommunications giant. The business that Nacchio built–Qwest’s original wholesale telecom business–was a mirage, kept going only through a series of deals in which Qwest signed contracts to buy services from companies that repaid the favor by buying from Qwest, creating the illusion of real revenues. Without the US West purchase, Qwest would have gone bankrupt just like the similar Global Crossing.
Second, there’s that “believed more than anyone else in the company’s future.” Now you can’t really quantify belief … oh, sorry, you can. A good way to do it is to look at how much stock a CEO sells in the company he runs. Some CEOs sell a little stock. Some, and these are the CEOs who believe in their companies “more than anybody else,” buy stock in their companies. Joe Nacchio wasn’t one of them. Before Qwest’s stock went through the floor, Nacchio managed to sell enough stock to put $260 million in the bank. He sure didn’t believe in Qwest as much as the investors who were taking that stock off his hands.
Maybe those investors should have watched what he was doing instead of what he was saying. But the fact that in the telecom frenzy Nacchio managed to fool people into thinking that a CEO might “believe” in his company while frantically “diversifying” his portfolio out of its stock isn’t a good reason to fall for the same tired line now.
(Thanks to the Journal for posting the full text of the appeal.)