Fight Over Classified-Info Trial Defense

The Wall Street Journal reported Friday (article preview) on a novel defense strategy by Joseph Nacchio, the indicted former head of Qwest Communications.

Nacchio, who's on trial for 42 counts of insider trading, is set to start today in Denver. The former chief executive officer sold $100.8 million worth of Qwest stock in 2001 just before the company's shares tanked.

His lawyers’ explanation for why Nacchio wasn't bailing out of the stock in 2001 before the downturn brought on by Qwest's problems? “He had classified information about big national-security-related federal contracts that he thought Qwest would win,” the Journal reports. The fight over the classified information “has engulfed the case” in complications about revealing classified information in court, the Denver Post reported earlier this month. The government has "aggressively fought the release" of any information concerning the contracts, which might help Nacchio prove his case, according to the Journal.

Prosecutors have dismissed the secret-contracts defense, “in part because Qwest’s revenue from government contracts was too small to offset other problems” at Qwest, according to the Journal. Qwest badly burned itself with breakneck fiber optic cable expansion during the Internet boom, while neglecting its basic business of residential telephone service. Qwest customers launched a successful class-action law suit in 1997 and finalized in 2001 over poor service. (The suit was first filed against US West, which Qwest bought in 2000.)

Qwest is one of the big four telcos to bidding on Networx, the General Services Administrations’ governmentwide voice, data and video transmission procurement that could be awarded any day now. The other companies bidding include AT&T, Sprint and Verizon.