Prosecutors have been building their case against Joe Nacchio layer by layer.

A handful of former Qwest senior executives already have testified that Nacchio, the company's former CEO, brushed off warnings that the company's 2001 financial targets were unrealistic.

Former Qwest Chief Operating Officer Afshin Mohebbi, who testified briefly Thursday and returns to the stand Monday, adds a potentially thicker layer because he ran day-to-day operations and the jury may give greater weight to what he says.

"I think his testimony will be very telling," said Donna Jaegers, who met both Nacchio and Mohebbi when she was an analyst with Invesco Funds Group. "Joe would set the targets and basically Afshin was the guy in charge of making sure they could get it done."

Nacchio faces 42 counts of insider trading in connection with selling $100.8 million of Qwest stock in the first five months of 2001. Prosecutors allege he accelerated stock sales while knowing Qwest's business was weakening.

Tony Leffert, a former federal prosecutor and now partner of the Denver law firm Robinson Waters & O'Dorisio, also views Mohebbi as a critical witness, given his position at the company and the conversations he may have had with Nacchio.

But Leffert warned against too-high expectations: "These aren't cases where you have smoking guns - a memo or letter where 'Mr. Nacchio told me this was wrong, and he was going to do it anyway to make a lot of money.' "

Strong credentials

Mohebbi, who is in his mid-40s, was born in Iran and raised in Southern California. He graduated from high school at age 16 and received his bachelor's degree in electrical engineering in two years - with honors - from the University of California at Irvine.

Starting in 1983, Mohebbi held various positions at Pacific Bell and its successor SBC Corp. At age 35 he became the youngest divisional managing director ever at British Telecom. He was hired by Qwest in 1999, his skills needed when Qwest acquired U S West, a Baby Bell.

"I was always very impressed by him," Jaegers said. "Nacchio was the ultimate sales guy, but Afshin was down-to-earth and focused on the blocking and tackling. He was sharp, but not aloof."

Jaegers said she was struck by the way Mohebbi thought ahead. "He negotiated with unions a year ahead of time so the stuff they had to do wasn't interrupted."

Tom Friedberg, a former Denver telecommunications analyst who covered Qwest closely for years, also praised Mohebbi.

"His credentials were impeccable," Friedberg said, adding Mohebbi was the "most capable executive I've known to work for either Qwest or U S West."

Mohebbi, more so than Nacchio, understood what it would take to "morph this Bell culture into an aggressive" Internet-based telecommunications company, Friedberg said. He noted Mohebbi was a managing director at British Telecom at a time when that monopoly was being opened to competition.

Voicing concerns

In his brief testimony Thursday, Mohebbi said investors had concerns when the Qwest-U S West merger was announced in 1999 because U S West was slower-growing. The stock plummeted at first.

Prosecutors have made the point that U S West made up about three-quarters of the new company and had modest, single-digit revenue growth. Yet Nacchio projected 15 percent to 17 percent annual growth for the merged company.

Prosecutor James Hearty emphasized Mohebbi's telecommunications experience when he indicated in his opening statement that Mohebbi would be one of the prosecution's key witnesses.

Hearty presented an organizational chart on a poster board with Nacchio's photo, with photos beneath of Mohebbi, former Chief Financial Officer Robin Szeliga and former investor relations director Lee Wolfe. Szeliga and Wolfe already have testified that they warned Nacchio the targets were too high.

Mohebbi delivered two memos to Nacchio in December 2000, but the meaning of those memos has been debated by the two sides.

Prosecutors say one memo warned Nacchio that Qwest's publicly stated financial targets for 2001 were a "huge stretch."

But lead defense attorney Herbert Stern, in his opening statement, said, "We are going to prove to you from the words of the letter and from the mouth of Mr. Mohebbi" that the memo was about internal budget figures set hundreds of millions of dollars higher.

The other memo states Qwest would have big problems in the second half of 2001 if it didn't crank up "recurring" business immediately. That refers to repeating business, such as customers who pay monthly bills for telephone service. Prosecutors allege Nacchio hid from the investing public that Qwest was relying on one-time deals to make its numbers in the first half of 2001.

Memo questions

There also could be debate Monday on how the memos were received.

Hearty said in the prosecution's opening statement that Mohebbi put his concerns in writing "because he wanted to make sure that he got Mr. Nacchio's attention, and that Mr. Nacchio frequently did not react well when he heard bad news and was confronted with bad news."

Stern made a point of saying several times in his opening that Mohebbi left the memos on Nacchio's chair.

Leffert said that could raise the question of whether Nacchio got the memos. But Leffert was skeptical. "Someone running a corporation like Qwest, he's the CEO, I'm guessing he's going to get them (the memos)."

Of the second memo, Stern maintains Nacchio was in Appalachia at the time with a clergyman "distributing food in hovels to underprivileged people. There was absolutely no way he could get this Dec. 20 memo."

Witness credibility

Mohebbi, who didn't sell stock during the first five months of 2001, was granted immunity from prosecution.

The defense will seize on that, Leffert said, trying to undercut his credibility by arguing Mohebbi will "say anything in order not to be prosecuted. With a key witness, it's always better to have a plea agreement."

Mohebbi also faces civil fraud charges by the Securities and Exchange Commission.

His congressional testimony in 2002 also may come up.

Mohebbi wasn't seen as playing a major role in Qwest's financial scandal even after testifying twice to Congress in 2002.

But that view changed some when Szeliga testified in front of Congress about an e-mail sent from Mohebbi's computer in late December 2000.

The e-mail characterized a secret side deal with Cable & Wireless. Szeliga said she found out about the e-mail in fall 2001 and that it invalidated the original accounting of the $109 million network capacity sale.

Mohebbi subsequently testified to Congress that he didn't recall sending the e-mail but "I'll take full responsibility for it."

Mohebbi also testified that while employees were pushed hard to reach sales goals, "I did not authorize or encourage anyone to cut ethical or procedural corners."

smithje@RockyMountainNews.com or 303-954-5155

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