Nacchio: Did U.S. Retaliate Because Qwest Refused to Comply With NSA Surveillance?

Looks like it's time for a trip to the courthouse tomorrow. The Judge in the insider trading trial of former Qwest CEO Joseph Nacchio has unsealed documents related to his classified information defense which he was not allowed to present at trial. This is coming up now because yesterday Joe Nacchio filed his appeal brief and one of the grounds alleges the Judge erred in refusing him to raise his classfied secrets defense.

The Rocky Mountain News reports:

The National Security Agency and other government agencies retaliated against Qwest because the Denver telco refused to go along with a phone spying program, documents released Wednesday suggest.

The documents indicate that likely would have been at the heart of former CEO Joe Nacchio's so-called "classified information" defense at his insider trading trial, had he been allowed to present it.


As to specifics:

The partially redacted documents were filed under seal before, during and after Nacchio's trial. They were released Wednesday.

Nacchio planned to demonstrate at trial that he had a meeting on Feb. 27, 2001, at NSA headquarters at Fort Meade, Md., to discuss a $100 million project. According to the documents, another topic also was discussed at that meeting, one with which Nacchio refused to comply.

The topic itself is redacted each time it appears in the hundreds of pages of documents, but there is mention of Nacchio believing the request was both inappropriate and illegal, and repeatedly refusing to go along with it. The NSA contract was awarded in July 2001 to companies other than Qwest.

It's been previously widely reported that Qwest refused to comply with the Government's demands, believing them to be illegal, unlike AT&T, Verizon and Bell South. (More here.) As I wrote at the time, "Three cheers for Denver-based U.S. Qwest." If Nacchio was behind the refusal, and I were the Judge, I think I would have departed downward from the sentencing guidelines for that act alone.

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    And I know I commented, at the time of his trial (5.00 / 2) (#1)
    by scribe on Thu Oct 11, 2007 at 02:08:57 PM EST
    (and maybe before, too) that it seemed exceptionally, um, serendipitous (though I didn't use that word) that he just happened to have personal criminal problems which arose after QWest declined to participate in criminality for the NSA.  (I'm just not going to wade through hundreds of comments to find mine... I know what I wrote.)

    But, no one really wanted to take me seriously then, so I guess I must have been wrong.  Right?

    Note, also, that the Program Whose Name Is Redacted was discussed, um, a month after Bushco took office.  Which kinda gives the lie to the whole "Started it in response to 9/11" BS the Admin's been spouting all along.

    How much you want to bet Rove had a hand in getting him indicted, like Ala. Gov. Seligman (TPM's been following that - here's the dep transcript of an accuser in that case:  a long .pdf)and the Mississippi Democrats?

    February 27. 2001 (5.00 / 1) (#3)
    by scribe on Thu Oct 11, 2007 at 03:07:37 PM EST
    should be the new focus of Congressional inquiries - and particularly in regard to the Telco's application for retroactive immunity for spying on 'murcans.

    From the documents linked at the Rocky Mountain News, it seems obvious the agency in question was the NSA.  (It was suggested in the Nacchio CIPA filings that it be referred to as an agency in the Department of Defense, which is where the NSA lies on the organization chart.)

    Back to February 27, 2001:
    Who attended the meeting?
    Who called it?
    Where was it held - building, room, etc.?
    What time?
    What was the program which the Government did not want discussed in the Nacchio prosecution?
    Who became aware of Nacchio's refusal to have QWest go along with the NSA, how, and when?
    To whom did those persons communicate regarding Nacchio?

    My surmise is the chains are very short in this one - Nacchio said no(, we won't let you cut into our network with a splitter to capture our customers' information, nor will we just give it to you).  (Skimming those documents over at Rocky Mtn. News - at another meeting, it appears Richard Clarke wanted to know whether QWest could build a separate network and Nacchio told him "I've done that twice already" - maybe part of the contracts QWest didn't get were for the separate network which carries the split-off information back (from the big cable rooms which are in issue in the S.F. EFF v. AT&T suit) to the off-site analysis place wherever that is.)

    A senior officer in the NSA - surely one with stars on their collar - was the recipient of the "no".  He turned around and the "no" made it to the OVP in one or two steps.

    And, a call went from the OVP to a loyal subordinate at DoJ about Nacchio being dirty.  Maybe it went after the NSA decided to not give QWest the "legit", though secret, contracts Nacchio was relying on when he made his higher projections.  And, the AG (IIRC - wasn't Ashcroft still a nominee in 2/01 because of his race issues?) probably never knew about that call.  Just like he never really knew what the so-called Terrist surveillance Program was about, until Comey and Goldsmith started digging into it.

    And, like in the Ala. Gov. Seligman case, there were likely some backroom shenanigans to steer Nacchio's case to a very unfriendly judge.  Seligman, it came out, was personally hated by the judge in his case (who blamed Seligman for an audit he'd undergone prior to going on the bench).

    Once you get enough of their MO exposed, it pops up time and again....

    hehe (1.00 / 0) (#10)
    by jimakaPPJ on Thu Oct 11, 2007 at 08:51:15 PM EST
    I have had quite a bit of experience with Qwest. So I can definitely say that the site linked to here is not located in the basement of Qwest Headquarters.."

    Actually the information was broadcast from atop the Great Tower  by a secret code using high definition ionic blitzs from the Gigantic Qwest sign to the secret location in Colorado Springs...



    February 2001 (none / 0) (#2)
    by scarshapedstar on Thu Oct 11, 2007 at 02:31:40 PM EST
    Wow, that would seem to indicate that 9/11 didn't really change anything and Bush was planning on spying on us all along. It's a sensible move in the wake of a coup, I'll admit, but it rather belies the authoritarian police state cheerleaders' cries of "We remember 9/11!"

    Bush Did All This in 37 days After Taking Office? (none / 0) (#4)
    by Discovery on Thu Oct 11, 2007 at 05:38:18 PM EST
    Qwest stock crashed in June 2001 to $2 dollars a share from $48 dollars a share because the earnings reports were off by $2 Billion dollars.  He was convicted on insider trading because he sold $100 Million in stocks before the corporate earnings report was released.

    Are you accusing the US Government of 1) filling cooked books with the SEC a year before Bush took office and 2) selling $100 Million in private CEO stocks for one month straight before they were made public and 3) forcing the company to release a quarterly earnings report that correctly listed the $2 Billion Shortage and 4) forcing all  investors in Qwest to dump the stock?

    And that Bush orchestrated all of this within 36 days of taking office from January 20th 2001 to February 27th 2001? And putting together a terrorist wire tapping program nine months before September 11th?  Might as well through WorldCom and Enron on the pile too - for masking three of the other largest bankruptcy and insider trading filings.

    And who in there right mind would award a $100 Million dollar contact in July 2001 to a company that is trading at 4% its value in June 2001?

    Careful TL - your starting to push into September 11th conspiracy territory.

    Um (none / 0) (#5)
    by scarshapedstar on Thu Oct 11, 2007 at 05:47:18 PM EST
    You ever hear the saying "drive it like you stole it"? It originates from a simple fact: you can't keep a stolen car. So you have some fun driving 130 on the interstate and then you set it on fire.

    What do you do with a stolen country?


    OnStar (none / 0) (#7)
    by Sumner on Thu Oct 11, 2007 at 06:18:52 PM EST
    heh (1.00 / 0) (#8)
    by jimakaPPJ on Thu Oct 11, 2007 at 08:30:59 PM EST
    Repeating myself....

    If you don't like OnStar and don't want OnStar, open your car's trunk and disconnect the power cable...

    That would be during the "free" fist year service..

    After that, don't pay for it and keep it disconnected.


    Please distinguish among the many flavors (none / 0) (#9)
    by scribe on Thu Oct 11, 2007 at 08:46:25 PM EST
    of "insider trading".

    There's trading on material non-public information.
    There's misstatements on earnings projections or accounting reports.
    There's defrauding investors by outright lying about past performance or any of the myriad things that get regulated in a public company.
    And then there's all other sorts of frauds.  (A wise man once said "the variety of frauds is limited only by the scope of the human imagination" or words to that effect.)

    The problem here is:
    (A) it appears he made income projections based upon the existence of secret contracts for secret work (and not even his CFO was cleared to know about these contracts or the work);
    (B)  income projections upon work-you-expect-to-get-but-haven't-signed-the-contracts-for are a normal part of business
    (1)  If you, as an officer of a public company,  don't include the prospective business (here, secret contracts for secret work) in the projections and your company's numbers come in huge (you make more than expected), you get hit (Criminally and/or civilly) for misstating the prospects of the company - shooting too low.  You're likely also breaching your fiduciary duty to the company and the shareholders, in addition to withholding information.
    (2) If your company (a) has done this kind of work in the past and (b) included the profits from it in the projetions back then, then you'd better do the same, now.
    (C) the government decided to not give those contracts to QWest, so the income from them never came in, making the projections inaccurate
    (D) he was precluded from showing at trial that (1) he actually did have a good-faith basis for the projections he was making (based upon the expected income from secret contracts for secret work) and (2) the reasons the government declined to give the contracts (i.e., he wouldn't go along with the criminality, so they retaliated)
    (E) All the telecoms took a brutal beating in 2001 from the collapse of the internet/telecom/dotcom bubble of the late 90s (how soon people forget), and QWest and Nacchio were the only ones singled out.  People who'd held AT&T stock since buying it one share at a time in the 40s and 50s (which had transmogrified into Baby Bells, and later things like Lucent, Agere, etc.) or even the 70s and 80s, lost 90% (or sometimes even more) of their investments, too.  

    Also, it's pretty clear the judge was biased against him.  The mocking, snide tone in the judge's opinions deciding the CIPA issues is unmistakeable.

    Thanks for the help (1.00 / 0) (#11)
    by jimakaPPJ on Thu Oct 11, 2007 at 09:05:07 PM EST
    the government decided to not give those contracts to QWest, so the income from them never came in, making the projections inaccurate

    Since Nacciho was the one who turned down the request, it appears that he would have known of the expected shortfall, and be a motive for his selling of his shares before the shortfall became public.

    There are ways to high light certain revenues... words such as "expected but speculative" come to mind...as foot notes.

    scribe, this guy was bad news. He hurt a lot of people while making millions. He got what he deserved.


    It's Relevant Because (none / 0) (#12)
    by Jeralyn on Fri Oct 12, 2007 at 10:42:07 AM EST
    Nacchio is saying the insider trading charges were payback for his refusal to have Qwest comply with the NSA program.

    The theory they used for his insider trading charges was a novel one that hadn't been used before. It wasn't based on him having hard information but upon internal projections made months earlier.

    In other words, the defense says they cooked up a way to charge him to punish him for his NSA participation refusal. And that he didn't find out about Qwest not getting the contracts until months after he sold his stock. Which in turn supports their defense that he had reason to be rosy about Qwest's future at the time he sold his stock despite the projections because he thought Qwest was getting the government contracts.

    The other Qwest officers who testified there were no such contracts listed as initiatives wouldn't have known about the possible contracts because they didn't have security clearances and contracts still in the discussion phase weren't listed as initiatives.

    At least I think that's the defense from reading the new documents.

    The figures are not the same (none / 0) (#13)
    by Discovery on Fri Oct 12, 2007 at 12:19:01 PM EST
    Scribe - the figures still don't add up.

    Profits on one-time fiber optics sales were overstated as recurring profit from 1999 to 2002 by $2 to $3 Billion dollars.  

    The government contracts discussed was only for $100 Million - that is less than 5% of the discrepancy.  

    So unless payback includes filing overstated corporate reports from 1999 to 2002 by 98% greater than the secret contract no one in the company, a single investor or the SEC noticing... then performing 48 stock trades on behalf of the CEO without telling investors for over $58 Million dollars after the CEO received the first negatives earnings report went public - then yes - it was an amazingly performed long-term retaliation.    

    AT&T only dropped by 30% from it's highest to its lowest - not 97% like Qwest.  The two losses are not equivalent.  

    Even if you do realize that this man deceived, lied and cheated so many - how can you possibly begin to believe him now?  When it still only accounts for 5% of the discrepancy?