Feds Crushed Telecom CEO Who Protected Customer Data from NSA Snoops…But He’s Back, Protesting New Reform Law
Long before 9/11 in 2001 or the reformist surveillance law signed last month, one of the nation’s top telecom executives reminded federal officials they needed court approval before his company could hand over en masse private customer data to the National Security Agency (NSA).
Qwest Chairman and CEO Joseph P. Nacchio, shown at right, thus followed traditional business and legal principles regarding government requests for electronic data. He chaired two national telecom advisory commissions under the then-new Bush administration after 26 years with AT&T. So, he was an expert even though Qwest (a fiber company that acquired US West) was best known in the Western states it primarily served as one of the nation’s four regional Bell carriers during that era.
But Nacchio then endured a long nightmare of reprisal that is relevant to the supposed protections of the USA Freedom Act signed last month.
President Obama and other backers of the new law say it protects the public by keeping data with private companies except upon valid request from authorities.
That protection is questionable in the real world, however, especially after the reported compliance of all telecom companies in 2001 except Nacchio to the NSA warrantless requests — and the brutal, little-known reprisal against Nacchio, the holdout.
Nacchio will speak of these factors July 29 10 a.m. at the National Press Club and then at a 4 p.m. panel on political prosecutions as a threat to democracy at the Whistle Blowers Summit in Washington, DC.
Authorities cancelled hundreds of millions of dollars in contracts for Qwest to provide services for federal agencies. The company’s stock price spiraled down from $38 to $2 amid the general decline in telecom in 2001 and factors specific to Qwest.
Even worse for Nacchio, he then received a six-year prison sentence on questionable federal convictions for his sales during a trading window in April 2001. His prison term came with a $19 million fine and an additional $44 million in forfeiture penalties.
The punishment appears to have been reprisal via a political prosecution of a kind rare in U.S. securities law history. Today’s column focuses primarily on Nacchio’s perspective on the viability of the USA Freedom Act. Details of his court cases are for another day except for a brief overview:
Authorities convicted Nacchio of insider trading for selling stock during April 2001, a designated window when he was permitted by the company to sell stock. This followed internal discussions that Qwest (later acquired by CenturyLink in 2011) had income that would not continue.
Nacchio has unsuccessfully argued in filings extending to the U.S. Supreme Court that CEOs frequently hear both good and bad internal predictions that do not arise to “material” information whose disclosure to the stock-trading public is required to avoid liability under securities law. Thus, he argued, he remained optimistic about the company’s prospects and forbade his broker from selling his shares if prices dipped below $38. The U.S. Chamber of Commerce, among others, endorsed his legal position in briefs to the Supreme Court in Nacchio v. United States.
An additional obstacle for him, as for other litigants protesting “political” prosecution when authorities ignore similar acts, is that legal rules prevented Nacchio from arguing during his criminal case that he had been the victim of “selective” prosecution. But he did argue reprisal more recently in tax litigation before the U.S. Court of Claims.
During the criminal trial, Chief U.S. District Judge George Nottingham of Denver made many pro-prosecution rulings.
As it turned out, the married judge was also hiding a secret sex scandal. This raises the additional question — relevant to ordinary citizens also who might have reason to fear electronic surveillance — of whether the married judge was under pressure from his shame of being a big spender on prostitutes and strippers.
Whatever the answer on that, Nottingham (shown in a file photo and now off the bench in disgrace after his wife blew the whistle) denied Nacchio some basic fair trial safeguards.
For example, Nottingham forbade University of Chicago law professor Daniel Fischel, Nacchio’s main defense witness, from testifying about industry-wide norms for CEOs handling confidential information and trading shares. Stock was Nacchio’s main form of compensation following his three decades in telecom. A divided appellate court later sustained Nottingham’s ruling.
Although a jury is supposed to be neutral, Nacchio faced also a popularity problem in Qwest’s home region because the savings of many retirees were locked into a pension plan. Nonetheless, many telecom companies went bankrupt outright during “The Tech Wreck” of 2001 on the stock market and only a few of their CEOs were indicted for making optimistic comments typical for the job.