In response to Monday’s post on the sentencing of Joe Nacchio, I received the following e mail…
Dear Mr. Bilanich:
Your article of July 30, 2007 concerning Joseph Nacchio is filled with half truths and accusations that simply are not true. I attended the trial in Denver and this guy never had a chance. It was clear from day one that he would be convicted of something. There must not be much going on in Denver for so much print and TV time to be devoted to this. There was no way he could receive a fair trial. Even the comments and behavior of the judge was questionable.
To start Mr. Nacchio did not receive $52 million in gains as your article states. This was the gross proceeds and even the judge admitted he received $28 million. Also everyone fails to realize that the exercise price on the options went into the company treasury in the form of cash.
In addition in April and May Mr. Nacchio issued two (2) trade orders, one each month. The Brokers then broke up the trades into 19 transactions. The government claims each one is a separate trade order. Giving the government the ability to pile on. These trade orders were issued in a legal trading window approved by the Company General Counsel, Drake Tempest and approved by appropriate Qwest Board Committee. Tempest had the exact same information that Nacchio had. If there was a problem it was his responsibility to close the trading window yet he failed to do so.
The sale of space on the Fiber-Optic network was new technology with no accounting rules. A meeting was held between the Big 5 (at the time) Accounting firms, the SEC and the financial personnel from the various telecom companies to discuss. The Arthur Andersen white paper was the basis for the accounting rules adopted. This basically said to treat this as a real estate sale and record the revenues up front even though payments may come in later. There was also unlimited space on the Fiber-Optic network that could be sold. If Companies stop buying that is a separate issue but at the time the legitimate accounting did not believe these sales to be one time "bumps". It should also be pointed out that Arthur Andersen was the US West auditors and not the Qwest auditors. The merger agreement retained Arthur Andersen at the request of US West.
Joseph Nacchio is not a foolish or stupid individual. By background he is an Engineer. While I am sure he understood the accounting treatment and disclosures being proposed he would also defer to the experts and accept the treatments they proposed. These would also have to have been approved by the General Counsel, Outside Counsel, the auditors, Qwest financial personnel and the Audit Committee. Now in hindsight everyone wants to blame him and him alone.
Joe Nacchio is not a greedy individual. A tough manager, - absolutely, but he is not a crook. He was acting in absolutely good faith. He also had a stop order in on all sales at $38/share. How can a juror after the fact make the statement that "he must have known something". This defies logic and the standard for guilt. Apparently the jury had no idea what information he possessed to trade on.
Ask yourself how Philip Anschutz could sell $179 Million in stock in the same period and not be charged. Ask yourself how Drake Tempest, the General Counsel who determines the trading windows, could sell millions of dollars of Qwest stock in the same period and not be charged. Then ask yourself how come the only telecom exec who wouldn't turn over phone records to the government is now charged and prosecuted.
Please try and keep your opinions fair and balanced.
Very truly yours,
As the person who sent this e mail did not post it in the comments section of the blog, I have not included his name.
My response…
Mr. X:
I used Denver Post and Rocky Mountain News articles as source material for my blog. I assume their account of the sentencing is accurate.
And yes, this is a big deal in Denver. Many loyal Qwest employees lost their retirement savings as a result of Mr. Nacchio’s mismanagement of the company and his crimes.
The fact remains that Mr. Nacchio was convicted on 19 counts of insider trading. You may disagree with the verdict, but it was the verdict of the jury.
You say he is not a crook and was acting in good faith – the jury found otherwise. The judge in the case, not me, was the one who said that Mr. Nacchio was guilty of “overarching greed”.
Mr. Nacchio has the right to appeal. Until he is cleared by an appellate court, he is a convicted felon.
As to Mr. Anschutz – he wasn’t charged. For all I know, he also may be guilty – or he may not. We don’t know.
Thanks for your comments.
Bud Bilanich
PS – I had a good laugh when I saw that you cited an Arthur Anderson white paper in your e mail to me. As I recall, they offered some pretty flawed advice to Enron too.
When I began writing this blog, I did not set out to be a corporate gadfly, nor a protector of the truth. I wanted to show my readers how common sense is a useful guide for making business decisions. Occasionally, I post about corporate and individual malfeasance, but with the idea of making a common sense point.
In the case of Mr. Nacchio, the main common sense point is “don’t lie, cheat and steal”. The secondary common sense point is “face reality – don’t assume that a one time profit windfall will repeat itself”. Mr. Nacchio was guilty of both – a jury convicted him on insider trading charges. Common sense says that a competent executive should realize that a bump in revenues due to a sale that is unlikely to be repeated in the future, should not become the basis for future revenue projections.
I'm interested your thoughts on this. Please use the comments section to let me know what you think…
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 and to get a copy of my new ebook Star Power: Common Sense Ideas for Career and Life Success.
I’ll see you around the web, and at Alex’s Lemonade Stand.
Bud
Recent Comments