Joe Nacchio Is Guilty ... of Being a Moron

Let's say you know a CEO. He seems like a smart guy. He's good with the press. He's also quotable and brash. And he remains so, even after he's sold more than $100 million worth of company stock.

Trouble is, even as he's talking up the business, his management team reportedly warns him that his projections are unsustainable. He persists anyway because of top-secret information only he and the feds possess: Lucrative government contracts may be in the works!

Months later, no contracts have been signed and the business begins to fall apart. Billions of dollars in revenue have to be restated. And the CEO resigns in disgrace. Is he:

(a) guilty of insider trading
(b) guilty of fraud
(c) guilty of being a moron

I'll take "c," though a jury of Joe Nacchio's peers is charged with determining if the real answer is "a."

For months, the former Qwest (NYSE: Q  ) CEO, accused of looting by the feds, has been preparing for a trial that could cost him his fortune and land him in jail alongside former WorldCom CEO Bernie Ebbers and former Enron CEO Jeffrey Skilling.

Preparations included a dramatic tale worthy of James Bond, in which CEO/secret agent Nacchio possessed top-secret details of lucrative government contracts that were forthcoming. Therefore, the theory goes, Nacchio was being truthful, if pugnacious, in his public statements.

Not surprisingly, the feds disagree. Press reports say prosecutors are prepared to show that members of his management team, including former Chief Financial Officer Robin Szeliga, repeatedly warned Nacchio that his estimates were far too aggressive.

Defense attorney Herbert Stern counters that Szeliga and other witnesses like her prove nothing because they didn't know about Nacchio's secret deals. Perhaps he's right. Perhaps Qwest was on the verge of signing big contracts that would have vindicated Nacchio's bluster.

Even so, that doesn't excuse his actions. Think about it. Nacchio could have easily adjusted guidance so as to make the super-secret federal contracts a pleasant surprise for the Street if they ever came through.

Instead, Nacchio abandoned every principle of conservative management in running Qwest. The feds say he did it to line his own pockets. My guess is that they're right. But, irrespective of his motives, his poor management of one of Denver's largest employers destroyed lives.

Joe Nacchio is guilty, all right. Guilty of being a moron.

Fool contributor Tim Beyers, who is ranked 1,120 out of more than 24,700 in our Motley Fool CAPS investor-intelligence database, didn't own shares in any of the companies mentioned in this article at the time of publication. All of his portfolio holdings can be found at Tim's Fool profile. His thoughts on Foolishness and investing may be found in his blog. The Motley Fool's disclosure policy is happy to be lead counsel for your portfolio.


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