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Joe Nacchio got sentenced to six years in prison last Friday. He also has to forfeit $52 million in stock sale gains and pay a $19 million fine. While Mr. Nacchio may not be as well known as Ken Lay, Dennis Kozlowski or John Rigas, here in Colorado he is every bit – if not more notorious.
Mr. Nacchio is the former CEO of Qwest. He was convicted on 19 counts of insider trading on April 19 of this year. Each count was associated with a sale of Qwest stock by Mr. Nacchio after April 26, 2001. On April 24, 2001Qwest released quarterly revenue results. That same day, in a Qwest news release and an analyst conference call Mr. Nacchio predicted that Qwest’s revenues would continue to grow at a double digit rate, despite a turndown in the telecommunications industry. Mr. Nacchio sold more than $30 million dollars in Qwest stock over the next month.
Basically, the conviction came down to this: when he made these stock sales in April and May of 2001, Mr. Nacchio knew that Qwest would not be able to meet the revenue goals he predicted in the April 24 news release and analyst call. Revenues were high in the first quarter of 2001 because of the sale of space on Qwest’s fiber optic network. This sale however, was a one time deal and could not be counted on to provide sustained revenue growth. In other words, Mr. Nacchio lied. He should have informed analysts that Qwest revenue was likely to decline steeply over the rest of 2001.
Mr. Nacchio’s overly optimistic assertions to analysts weren’t a crime in and of themselves – just poor common sense. He crossed the line though when he sold over $30,000,000 of Qwest stock. He was guilty of classic insider trading – profiting from knowledge that he had, but did not disclose to the investing public.
In fact, when his head of investor relations questioned Mr. Nacchio’s decision to not disclose the perilous state of Qwest’s 2001 earnings, Mr. Nacchio said “screw ‘em, tell them to buy”.
Joe Nacchio’s sentencing is the last of the really high profile cases in which CEO’s defrauded their investors. Edward Nottingham, the Judge in the case who sentenced Mr. Nacchio said his were “crimes of overarching greed”. And indeed they were. Many Qwest employees lost their entire retirement savings when the stock that once traded in the $60 range during Mr. Nacchio’s tenure ended up at $2.00 a share.
Why am I writing about Joe Nacchio here? Because he violated the most sacred trust of an official in a publicly traded company. He lined his own pockets at the expense of the Qwest shareholders who trusted him to be truthful. This is pretty despicable in my book.
However, even if you take Mr. Nacchio’s crimes out of the equation, he still acted in a manner that defies common sense. He had a windfall in the first quarter of 2001 due to the sale of space on Qwest’s fiber optic network. Instead of reporting this windfall for what it was, and using it to address revenue concerns in the coming months, he passed it off as typical of the revenues investors would see for the balance of the year.
Who was he kidding? One time revenue bumps are just that – one time bumps. Common sense says that a prudent executive would have used the one time bump to solidify the company’s position – to find new revenue streams. Mr. Nacchio didn’t do so. Instead, he watched the company – and a lot of employees’ and investors’ money go down the drain.
The common sense point here? Don’t lie, cheat and steal, or you’ll end up disgraced and in jail. Even more important, deal with reality. Solve the problems the market throws at you.
That’s it for today. Thanks for reading. Log on to my website www.BudBilanich.com for more common sense. Check out my other blog: www.SuccessCommonSense.com for common sense advice on becoming the career and life success you are meant to be.
I’ll see you around the web, and at Alex’s Lemonade Stand.
Bud
PS: Speaking of Alex’s Lemonade Stand – my fundraising page is still open. Please go to www.FirstGiving.com/TheCommonSenseGuy to read Alex’s inspiring story and to donate if you can.
i hope he gets hurt badly in jail. this is taking self-confidence too far, believing too much in yourself that you think you are untouchable. there are many more lik ehim out there, let's hope this sets an example for the other bad guys to clean up his act.
Posted by: steve | July 31, 2007 at 07:56 AM