Joe Nacchio, Qwest, and the Underpants Gnomes

Convicted crook and former Qwest (NYSE: Q  ) chief executive Joe Nacchio is suing attorney Herb Stein for incompetence and overbilling. Among the alleged splurges: in-room movies, expensive team meals, and underwear.

Yep, underwear. As if the fictional Underpants Gnomes from South Park came to life and snuck into Stein's room, swiping his skivvies during the 2007 insider trading trial that ended with Nacchio sentenced to six years in federal lock-up. It'd be hilarious if it weren't so infuriating. This is the sort of distasteful nonsense CenturyLink (NYSE: CTL  ) can expect as it consumes Qwest. Bon appetit.

I know, I know, Nacchio hasn't been CEO of Qwest in years. Yet cutting ties hasn't been easy. As a condition of his employment agreement, the carrier has covered some of Nacchio's legal fees. Separately, in 2009 Qwest paid $40 million to settle a class action dispute in which Nacchio was named as a defendant.

Let this be a lesson, Fool. Management and cushy employment agreements can cost you as an investor. Learn to read proxy statements. Pay attention to the fine print. Because whether you want to believe it or not, compensation schemes that reward real performance (like this one does) are rare.

Don't believe me? Here's a sampling of the unseemliness uncovered by Michelle Leder and her team of financial statement sleuths over at footnoted.com recently:

  • At Sunrise Senior Living (NYSE: SRZ  ) , the co-founder's wife has a six-figure contract for advising management on training, morale, and to speak at company functions. Who knew cheerleading could be so lucrative?
  • At Cigna (NYSE: CI  ) , chairman Isaiah Harris Jr. set what might be a new record for director compensation for ... transitioning from vice chairman to chairman. Great gig if you can get it, eh?

The truth is that too many investors don't read financial filings and as a result fall victim to incompetent or unethical managers and board members, often with devastating results. Nacchio was probably a little of both, and Qwest's shareholders have paid the price.

Now it's your turn to weigh in. Which company do you think is shaping up to be the Next Big Implosion? Let us know what you think using the comments box below.

You can also rate Qwest in Motley Fool CAPS and keep tabs on the company by adding the stock to your watchlist for free, personalized stock tracking.

Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team. He didn't own shares in any of the companies mentioned in this article at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. You can also get his insights delivered directly to your RSS reader. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool is also on Twitter as @TheMotleyFool. Its disclosure policy has never seen an Underpants Gnome.


Read/Post Comments (3) | Recommend This Article (8)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 24, 2011, at 1:35 PM, jlacroix wrote:

    First: Steal investor's funds

    Second: ?

    Third: Profit!

  • Report this Comment On March 24, 2011, at 1:39 PM, TMFMileHigh wrote:

    @jlacroix,

    +1 for awesome comment of the week. Laughing out loud from that one.

    Foolish best,

    Tim (TMFMileHigh and @milehighfool on Twitter)

  • Report this Comment On March 24, 2011, at 3:46 PM, samedge2 wrote:

    Not a Joe Nacchio or Qwest fan, but do remember that Qwest was the ONLY US-based telecom company to refuse to comply with the Bush Administration NSA request for customer telephone records in 2001. This was directly because of Joe Nacchio and his observation that this was a violation of the telecommunications act. (http://www.usatoday.com/news/washington/2006-05-12-hayden-su...

    I'm not saying this to validate his insider trading conviction by any stretch (which took place between 99-02), but you must believe this brought Joe Nacchio and Qwest under higher scrutiny from an administration that violated many constitutional rights.

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