Former Qwest CEO Joe Nacchio unloaded nearly $101 million of company stock in early 2001 not because he had insider information that the company was in trouble but because the board of directors forced him to use his valuable options before they expired, defense attorney Herbert Stern told jurors Tuesday.

Stern also said any warnings Nacchio received from employees about not meeting 2001 numbers referred to internal goals that were higher than the targets Nacchio was giving Wall Street.

Nacchio, who is charged with 42 counts of insider trading, believed "passionately, honestly and fervently" in the company's publicly stated goals, Stern added during two hours of opening statements at the federal courthouse in Denver on the second day of the trial.

Prosecutors say Nacchio sold the stock because he knew the company's revenue targets were inflated - information he didn't share with investors. When the stock later dropped, thousands of shareholders who weren't privy to the information - including many current and former employees - lost money, some of them their entire retirement savings.

"This is a case about cheating," Assistant U.S. Attorney James Hearty said during his opening statement. "It isn't a case about accounting. It's a case about fairness. There would have been nothing wrong with Joe Nacchio selling his shares so long as he told investors about the problems he knew about."

Hearty, who spoke for about an hour and 15 minutes, showed jurors several timelines outlining what Nacchio knew and when, and when he made the stock sales included in the government's indictment. The number of shares sold during that time - from January to May 2001 - was five times the shares Nacchio sold during the previous 18 months, Hearty said.

Each sale closely followed a warning from other Qwest executives that the company's revenue targets were too high, largely because the company was depending too much on "one-time" sales of space on its telecommunications network, rather than more stable, recurring business such as home telephone service.

In one memo, then-President Afshin Mohebbi stated the goals were a "huge stretch," Hearty said. In another memo he warned of "big problems" approaching.

Hearty also said Nacchio backdated a form certifying that he had no insider information when he planned a January 2001 stock sale. That form, displayed for jurors, was dated Nov. 3, 2000. But prosecutors said it actually was created Dec. 13 - after Mohebbi issued his first warning to Nacchio.

Seated at the defense table, Nacchio shook his head back and forth at the allegation.

Stern later refuted the accounts of Mohebbi's memos. In the memo referring to the "huge stretch," Stern said, Mohebbi actually was talking about Qwest's internal budget, which was called the "stretch budget" because the goals were higher than the publicly stated targets.

Nacchio sat quietly most of the day except for when Stern told jurors that the New Jersey man had struggled with his decision to leave the East Coast for the Qwest job in 1997 because he had a son with an emotional illness. That son tried to commit suicide and was hospitalized for about a month in 2001, Stern later added.

Making points

PROSECUTION

• Nacchio told investors all was well with Qwest - even as his own executives told him the company was in trouble.

• Nacchio secretly sold his own Qwest stock in 2001 because of his inside knowledge of company problems.

• Nacchio accelerated his stock sales, selling more shares in the first five months of 2001 than in the previous 18 months.

• Nacchio refused to lower his annual growth forecasts because of the negative impact on the stock price.

DEFENSE

• Nacchio's stock sales were timed in part by his contract with Qwest founder Phil Anschutz.

• Nacchio sold stock on the advice of his personal financial advisers.

• Nacchio went to Qwest's board to ask if his stock options could be extended, and the directors weren't willing to do it.

• Nacchio had access to information that Afshin Mohebbi and Robin Szeliga did not know concerning Qwest's possible receipt of secret government contracts that would boost 2001 revenue.

burnetts@RockyMountainNews.com or 303-954-5314

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