On the biggest day in the government's investigation of Qwest Communications, U.S. Attorney William Leone was low key. No glee, no pot...

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DENVER — On the biggest day in the government’s investigation of Qwest Communications, U.S. Attorney William Leone was low key. No glee, no pot shots, no scolding — just a calm insistence that pursuing allegations of white-collar crime was par for the course.

Perhaps that’s because the hard work has yet to come.

Former Qwest Chief Executive Joseph Nacchio was indicted Tuesday on 42 counts of insider trading accusing him of illegally selling $101 million in stock after privately learning the company might not meet its financial goals. Nacchio pleaded not guilty and was released on bond.

In a signal of just how complicated a trial might be, Leone said some 13 million pages of documents will be turned over to defense attorneys.

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Nacchio attorney Herbert Stern also said the defense might have to get national-security clearance to explore Qwest’s business dealings with the government.

“There’s a very real need for us to debrief our client,” he said.

For his part, Nacchio, 56, told reporters he was relieved to finally see details of the case against him.

Excerpts from Nacchio indictment

Excerpts from the federal indictment accusing former Qwest CEO Joe Nacchio of insider trading:

From Dec. 4, 2000, through Sept. 10, 2001, Nacchio “was aware of material, non-public information about Qwest’s business.”

“Qwest’s publicly stated financial targets, including its targets for 2001, were extremely aggressive and a ‘huge stretch.’ “

“Qwest’s past experience or ‘track record’ in growing recurring revenue at a sufficient rate to meet its publicly stated financial targets was poor.”

“The gap between Qwest’s publicly stated financial targets and Qwest’s recurring revenue was increasing, thus increasing Qwest’s reliance on risky and unsustainable one-time transactions.”

“Beginning as early as August 2000, Nacchio was specifically and repeatedly warned about the material, non-public financial risks facing Qwest and about Qwest’s ability to achieve its aggressive publicly stated financial targets.”

“Nacchio’s stock sales accelerated in January 2001 as he became aware of additional material, non-public information.”

Source: U.S. Attorney General

“It’s pretty tough for four years to have to sit back and let everybody take shots at you,” he said outside the federal courthouse, a short walk from Qwest’s headquarters in downtown Denver.

The criminal charges are the first against Nacchio in the government’s lengthy investigation of Qwest, the telephone-service provider for Washington state and 13 other mostly Western states that only now is recovering from a multibillion-dollar accounting scandal.

The charges come nearly three years after then-Attorney General John Ashcroft announced the first indictments in the Qwest investigation, calling it an example of the government’s intolerance of white-collar crime.

With Nacchio’s indictment, Leone said, that investigation is virtually complete.

“It’s important for corporate executives to recognize that when they’re in possession of information that the general public is not in possession of, they’re under a duty to abstain from trading,” he said. “Failure to honor that rule impairs confidence in our markets.”

Each count carries a penalty of up to 10 years in prison and a $1 million fine.

Nacchio already faces investor lawsuits and fraud charges filed by the Securities and Exchange Commission.

The indictment accuses him of selling $101 million worth of Qwest stock in the first five months of 2001, when he allegedly had insider information. Sales involved 42 transactions ranging from $191,000 to $13.6 million each.

The indictment blames Nacchio for “a manipulative and deceptive” scheme to commit fraud and says he was “specifically and repeatedly warned” about the financial risks facing Qwest just five months before the stock trades in question.

Prosecutors refused to say who allegedly told him about Qwest revenue problems or who might testify at trial.

The government has said in both civil and criminal complaints that Qwest and some of its former executives participated in a massive financial fraud between April 1999 and March 2002 by falsely reporting one-time sales or trades of capacity on its fiber-optic cables as recurring revenue.

The fraud allowed Qwest to improperly book about $3 billion in revenue that eased its 2000 merger with US West, and it allowed various executives to reap millions in “ill-gotten” profits, the government has said.

Qwest later restated earnings from 2000 and 2001 to erase about $2.2 billion in revenue.

The indictment said Nacchio was aware of Qwest’s “extremely aggressive” financial targets, and that to meet those targets in 2001 the company would have to significantly boost its flagging “recurring revenue business.”

It said he also knew there wouldn’t be enough revenue from other sources to “close the gap” between Qwest’s publicly stated goals and its actual performance.

Nacchio has denied any wrongdoing, telling members of Congress in 2002 that he made stock sales believing Qwest’s financial statements always were “a full and accurate picture of its financial condition.” He has already asked a judge to throw out the SEC complaint, saying the allegations are “not the stuff of securities fraud.”

Prosecutors have lined up some of Nacchio’s former colleagues to testify, including former Chief Financial Officer Robin Szeliga, who pleaded guilty to insider trading for a 2001 stock trade, and former sales executive Gregory Casey. Both Szeliga and Casey have settled SEC charges against them.

During a criminal trial last summer for four former Qwest midlevel managers, Szeliga said there was significant pressure from Nacchio to meet financial targets — enough to create a “pressure-cooker” atmosphere.

Also, former Qwest President Afshin Mohebbi was granted immunity and is expected to testify at trial. His lawyer, Paul Grand, has said Mohebbi won’t face criminal charges.

A former AT&T executive, Nacchio was hired to head Qwest in 1997 when it was installing fiber-optic networks along railroad rights-of-way.

He attracted Wall Street’s attention after engineering Qwest’s acquisition of US West but resigned under pressure in June 2002, about eight months before Qwest restated revenue for 2000 and 2001.

Jacob Frenkel, a former federal prosecutor and former SEC lawyer, said the absence of charges accusing Nacchio of manipulating company earnings was striking.

“With the amount of time that has passed in this investigation, we must assume that the government has taken its best shot, and this is it,” he said. “The government has put its bullet in the chamber and it has fired. We’re going to find out at trial if they hit or miss.”

Last month, Qwest said it would pay $400 million to settle the claims of tens of thousands of investors who bought Qwest securities. The deal doesn’t cover Nacchio and former CFO Robert Woodruff.

Qwest earlier agreed to pay $250 million to settle SEC charges of fraud without admitting wrongdoing.

Associated Press reporters Don Mitchell, Catherine Tsai and Sandy Shore contributed to this report.