Colorado & Denver News

DENVER (AP) ― Attorneys for former Qwest Communications CEO Joseph Nacchio met with federal prosecutors and a judge for more than three hours Thursday in a closed hearing on secret government documents he wants to use in his defense against insider trading charges.

Prosecutors and defense attorneys left without comment after the hearing, which recessed without a decision.

Nacchio, who is free on bail and did not attend the hearing, is charged with 42 counts of insider trading, accused of selling stock in 2001 based on inside knowledge that Qwest would be unable to meet revenue targets. He stepped down the next year as Qwest became embroiled in an accounting scandal that forced it to restate billions of dollars in revenue.

The defense has said Nacchio was aware of secret government contracts awarded to Qwest and of "well formed" plans for future government business dealings with the Denver-based company.

At issue is whether the classified information will help explain what Nacchio might have known at the time the trades occurred. The attorneys and the judge have been cleared to review the information.

Prosecutors contend Nacchio dumped the stock in the face of negative information that was unavailable to outsiders.

Qwest Communications International Inc., the primary phone service provider in 14 mostly Western states, reported total revenue of $19.6 billion in 2001, the year of the trades in question. Of that, $322 million was attributed to federal contracts, and less than half of that came from classified contracts, according to court filings.

Prosecutors acknowledged that some of Qwest's business was "highly classified," but said in court filings that some of the information can be discussed without revealing the identity of the federal agencies or the nature of their business.

The company, for example, had an elaborate system of identifying classified federal contracts by using fictitious numbers or code names like "Ferrari," prosecutors say. Those identifiers were used on paperwork that allowed Qwest to set targets, make budgets and purchase materials.

"The government does not believe that it will ever be necessary to refer to classified information in this case," prosecutors said in court filings.

They also argue that even if Qwest had prospects for classified contracts that would offset any weakness in the business, Nacchio would have had the duty to disclose that information or abstain from the stock sales.

Before he closed the hearing, U.S. District Judge Edward Nottingham issued some decisions on jury instructions and said the government would have to prove that Nacchio knowingly and willfully acted with the intent to defraud, manipulate or deceive.

Each count against Nacchio carries a penalty of up to 10 years in prison and a $1 million fine. The trial is set for March 19 and is expected to last about 30 days.

Besides the criminal case, Nacchio is one of several former Qwest executives accused by the Securities and Exchange Commission in a civil case alleging they orchestrated a financial fraud that forced the company to restate billions of dollars in revenue.

The SEC has said fraud between April 1999 and March 2002 allowed Qwest to improperly report approximately $3 billion in revenue that helped clear the way for its 2000 acquisition of the Baby Bell U S West. The revenue was later restated.

(© 2006 The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.)