The Story Of Joseph Nacchio And The NSA(businessinsider.com)
businessinsider.com
The Story Of Joseph Nacchio And The NSA
http://www.businessinsider.com/the-story-of-joseph-nacchio-and-the-nsa-2013-6
8 comments
This came up last week, too. Joseph Nacchio sold millions of dollars of Qwest stock after gaining access to information about weak future sales and, according to other Qwest insiders including the company CFO, being warned specifically about the future value of his shares. Nacchio also wasn't the only Qwest exec to get taken down in the probe, and, obviously, Qwest wasn't the only company to be probed and ultimately prosecuted during the same time frame.
> Joseph Nacchio sold millions of dollars of Qwest stock after gaining access to information about weak future sales
"Gaining access to information about weak future sales" = He was threatened directly by the NSA that they would cut existing and not provide future contracts to the tune of approximately 3bn worth of revenue if he didn't play ball.
How is he supposed to notify the public of this fact when there's an implicit gag order in the requesting? So he has two options, take the financial hit for doing the right thing and telling them to go fuck themselves, or selling the stock and taking the legal hit for breaking insider trading laws.
"Gaining access to information about weak future sales" = He was threatened directly by the NSA that they would cut existing and not provide future contracts to the tune of approximately 3bn worth of revenue if he didn't play ball.
How is he supposed to notify the public of this fact when there's an implicit gag order in the requesting? So he has two options, take the financial hit for doing the right thing and telling them to go fuck themselves, or selling the stock and taking the legal hit for breaking insider trading laws.
Yes, he's expected to "take the financial hit." It is illegal for insiders to trade on secret information. You're not thinking it through carefully: Nacchio defrauded whomever bought his shares at their inflated price.
I'm completely aware the legally subservient option is to "take the financial hit". You're not think it through carefully, I just don't see that as a particularly relevant or salient point, the law is just an arbitrary set of rules the biggest bully has put in place, they probably congratulated themselves on a clever ploy putting him between a rock and a hard place rather than considering whether what they were doing and if the law was sane and gag orders attached to business negotiations with millions of dollars worth of personal repercussions for people under intense pressure to submit to the state was acceptable
I am not smart enough to understand how anything NSA did could have justified Nacchio defrauding his shareholders by willfully and knowingly selling them stock in his company at an inflated price.
Neither, it seems, was the court.
Neither, it seems, was the court.
In my humble opinion, the least morally questionable action to take in this scenario would have been to ignore the gag order, explain in public why the business was being lost, and take the rational sale option because of it.
Even this option isn't that great from his perspective though, I don't know what the penalty on breaking those gag orders is, I guess it's more than the penalty for insider trading?
They put him in a situation with a stack of bad options and even the best ones weren't that great, sitting back and criticising his actions after the fact whilst laying none of the blame on the people and institutions that created the situation is something I'm not smart enough to understand why you think is an acceptable analysis to take?
Even this option isn't that great from his perspective though, I don't know what the penalty on breaking those gag orders is, I guess it's more than the penalty for insider trading?
They put him in a situation with a stack of bad options and even the best ones weren't that great, sitting back and criticising his actions after the fact whilst laying none of the blame on the people and institutions that created the situation is something I'm not smart enough to understand why you think is an acceptable analysis to take?
He committed a fraud. Not against the government. Against his own shareholders. He sold equity in Qwest at prices he knew were not reflective of the underlying value of the stock, based on actual actionable secret information available to him as a company insider. That's a crime, as it should be.
NSA shouldn't pressure people to comply with gag orders, but that doesn't excuse Nacchio from choosing to harm his own shareholders simply to make additional tens of millions of dollars over what he already had. You can come up with 1,000 different ways to rephrase what you said; it will never convince me that multimultimultimillionaires should be excused for defrauding their own shareholders to increase their own bank balances.
NSA shouldn't pressure people to comply with gag orders, but that doesn't excuse Nacchio from choosing to harm his own shareholders simply to make additional tens of millions of dollars over what he already had. You can come up with 1,000 different ways to rephrase what you said; it will never convince me that multimultimultimillionaires should be excused for defrauding their own shareholders to increase their own bank balances.
> NSA shouldn't pressure people to comply with gag orders, but that doesn't excuse Nacchio
I agree with you, I just think what the state did was worse. Not only that but that kind of behaviour is par for the course for them rather than an exception to the rule that they resorted to in order to deal with a situation not of their own creation.
You are right though, he was no angel.
I agree with you, I just think what the state did was worse. Not only that but that kind of behaviour is par for the course for them rather than an exception to the rule that they resorted to in order to deal with a situation not of their own creation.
You are right though, he was no angel.
If you want to use Nacchio as an example of the unscrupulous tactics of NSA, I have no objection, as long as you don't try to rehabilitate Nacchio in the process.
Wondering if he knew he was going to get railroaded and decided to both build up some cash reserves via "insider trading" and do the "right thing" at the same time wrt by declining to cooperate.
At a guess he took a gamble, he made 3 million in salary in 2000, so the amount he sold was not trivial, even for him, he may have thought the government would not attempt to prosecute him, he may have thought if it came to trial the court would throw it out under the circumstances, he probably made a cost benefit analysis and acted upon it and ended up on the wrong side.
That's life.
EDIT: Interesting that this is downvoted, are you taking it as an indication that I'm attempting to say he got what he deserved with the above? That is not my intention, I'm simply pointing out that when you fight a bully, you often get a broken nose.
That's life.
EDIT: Interesting that this is downvoted, are you taking it as an indication that I'm attempting to say he got what he deserved with the above? That is not my intention, I'm simply pointing out that when you fight a bully, you often get a broken nose.
He also thought that he was safe doing what the vast majority of CEOs do on a regular basis. At the time of the stock sales he didn't realize just how much he was going to piss off the NSA in the next couple of years, much less how obedient federal prosecutors are to the NSA. It is impossible to become CEO of an ILEC without collecting a vast array of assets vulnerable to official attack. Nacchio might well have decided that the price he has paid was worth a clean conscience.
(I don't really think execs should be compensated with stock, but since they are you know they're going to be selling it regularly. Should they be prosecuted every time the price drops? Of course not, in fact they are almost never prosecuted.)
(I don't really think execs should be compensated with stock, but since they are you know they're going to be selling it regularly. Should they be prosecuted every time the price drops? Of course not, in fact they are almost never prosecuted.)
I'm not sure why I'm expected to give a shit that lots of other CEOs are defrauding the public alongside people like Nacchio.
Hahaha, too true. "Insider trading" is totally a made-up crime, intended more for the selective-enforcement convenience of our superiors in the Justice Department than for "the public". If the public wasn't so damn greedy, they'd invest in T-bills like good subjects. Leave the "high-yield" investing for those who are in the loop. That way NSA staff and their friends in Congress and on K Street can get all the money there is to be made by trading on their contract decisions.
If you want to argue that the USG should be more aggressively enforcing insider trading laws so as not to make extremely egregious violations look like selective enforcement, I'm right there with you. Otherwise, spare me the sob story that's attempting to rehabilitate the image of outrageously wealthy people who have committed fraud.
I won't speak for anyone else who takes an interest in Nacchio, but I don't care a bit for him personally. (Well, I guess if he and Ed Whitacre were both on fire, I'd piss on Nacchio first, but that's it.) His significance is more related to what it tells us about how the various parts of our government collaborate, take decisions, and act when no one is looking, and how the three-felonies-a-day phenomenon enables that.
To enforce insider trading laws in a "fair" way would require a massive expansion of the SEC and related agencies, which expansion would be funded by the general fisc for the specific benefit of investors. There are arguments to be made for that, but they seem similar to the arguments one hears for more aggressive enforcement of our drug prohibition. Those who argue loudest are interested parties. I'd prefer we reverse our many-decades trend, and experiment with less enforcement rather than more. I doubt we're capable of that, but sometimes I indulge in optimism.
To enforce insider trading laws in a "fair" way would require a massive expansion of the SEC and related agencies, which expansion would be funded by the general fisc for the specific benefit of investors. There are arguments to be made for that, but they seem similar to the arguments one hears for more aggressive enforcement of our drug prohibition. Those who argue loudest are interested parties. I'd prefer we reverse our many-decades trend, and experiment with less enforcement rather than more. I doubt we're capable of that, but sometimes I indulge in optimism.
I found this bit from the article interesting:
In July the FISA court ruled that the NSA violated the Fourth Amendment's restriction against unreasonable searches and seizures "on at least one occasion."
And yet I've read so many assurances from the legal eagles here on HN that since the relevant service providers already had these records, there was no way the Fourth Amendment applied. After all, it's just about your papers in your house! Because 18th Century!
Yeah, I knew that was bullshit, but it's nice to learn that even the craven, supine FISA court agrees. Try again guys!
In July the FISA court ruled that the NSA violated the Fourth Amendment's restriction against unreasonable searches and seizures "on at least one occasion."
And yet I've read so many assurances from the legal eagles here on HN that since the relevant service providers already had these records, there was no way the Fourth Amendment applied. After all, it's just about your papers in your house! Because 18th Century!
Yeah, I knew that was bullshit, but it's nice to learn that even the craven, supine FISA court agrees. Try again guys!
Lawyers have this habit that they share with coders, when they are consulted as to why the system is behaving in a certain way, they treat it in an exercise in debugging legislature, and tracing the path of execution of case through the legal system, much like a coder will debug a program, and trace the path of execution through the computer, and the various methods and decision trees in the source.
The difference is though, when a coder finds out why the program is doing what the user doesn't want it to do, he will say "See, there you go, we can fix it now" where the lawyer will say "See, there you go, it turns out you're in the wrong because the law says so", the deeper embedded in the fabric of the legal profession they are the harder it seems to be for them to consider the possibility that although it's the law, it can still be utterly and completely wrong.
The difference is though, when a coder finds out why the program is doing what the user doesn't want it to do, he will say "See, there you go, we can fix it now" where the lawyer will say "See, there you go, it turns out you're in the wrong because the law says so", the deeper embedded in the fabric of the legal profession they are the harder it seems to be for them to consider the possibility that although it's the law, it can still be utterly and completely wrong.
this story has been floating around for a week or so now.
i remember when the qwest insider trading scandal first broke back in 2001 - it fit with the times - bernie ebbers, worldcom etc - corrupt telecom executives.
it is quite disturbing to think that a CEO might have been targeted in this way for refusal to cooperate with the NSA.
so much so, that i have a hard time believing that this is actually the case. lots of people in jail have elaborate theories for why they are innocent.
the market topped in 2000. spring of 2001 the market was already in serious trouble. nacchio would undoubtedly have known about earnings shortfalls that would occur as part of the implosion of the telecom bubble. the company had a number of accounting irregularities and was engaged in phony broadband deals with enron. qwest would not have escaped the market troubles with an NSA deal.
let's keep some perspective here people.
i remember when the qwest insider trading scandal first broke back in 2001 - it fit with the times - bernie ebbers, worldcom etc - corrupt telecom executives.
it is quite disturbing to think that a CEO might have been targeted in this way for refusal to cooperate with the NSA.
so much so, that i have a hard time believing that this is actually the case. lots of people in jail have elaborate theories for why they are innocent.
the market topped in 2000. spring of 2001 the market was already in serious trouble. nacchio would undoubtedly have known about earnings shortfalls that would occur as part of the implosion of the telecom bubble. the company had a number of accounting irregularities and was engaged in phony broadband deals with enron. qwest would not have escaped the market troubles with an NSA deal.
let's keep some perspective here people.
This article is rather short on details. Here are a few more articles for the interested.
http://www.denverpost.com/business/ci_7230967?source=comment...
http://usatoday30.usatoday.com/news/washington/2006-05-10-ns...
http://www.denverpost.com/nacchio/ci_11786798
http://www.denverpost.com/business/ci_7230967?source=comment...
http://usatoday30.usatoday.com/news/washington/2006-05-10-ns...
http://www.denverpost.com/nacchio/ci_11786798
...after "being convicted of insider trading in April 2007 for selling $52 million of stock in the spring of 2001 as the telecommunications carrier appeared to be deteriorating."
Selective enforcement?
There don't seem to be that many cases: http://www.sec.gov/spotlight/insidertrading/cases.shtml
There don't seem to be that many cases: http://www.sec.gov/spotlight/insidertrading/cases.shtml
Selling stock based on private knowledge of the company's deteriorating finances while trumping up the company publicly is not your run of the mill "everybody breaks the law" selective enforcement situation.
The SEC brings tons of insider trading cases (the page you linked to points out that the ones on the page are just "examples"). See: http://www.mofo.com/files/Uploads/Images/130116-Insider-Trad... (Page 3.). The SEC and DOJ together brought 86 insider trading cases last year. Two recent convictions were Raj Rajaratnam (hedge fund manager) in 2011, and Raj Gupta (former chief executive of McKinsey) in 2012. It's a favorite go-to for the SEC because it's relatively easy to prove as far as financial crimes go.
The SEC brings tons of insider trading cases (the page you linked to points out that the ones on the page are just "examples"). See: http://www.mofo.com/files/Uploads/Images/130116-Insider-Trad... (Page 3.). The SEC and DOJ together brought 86 insider trading cases last year. Two recent convictions were Raj Rajaratnam (hedge fund manager) in 2011, and Raj Gupta (former chief executive of McKinsey) in 2012. It's a favorite go-to for the SEC because it's relatively easy to prove as far as financial crimes go.
"The SEC brought 58 insider trading actions in FY 2012 against 131 individuals and entities."
Seems like a small number to me considering the size of the market. The chances of being caught seems to be small indeed, unless someone is really looking.
Speaking of Raj Gupta, he was connected with Raj Rajaratnam, who was funding a group with alleged close ties to the Tamil Tigers.
I'm not saying there was no wrong doing, but something fails the smell test.
Seems like a small number to me considering the size of the market. The chances of being caught seems to be small indeed, unless someone is really looking.
Speaking of Raj Gupta, he was connected with Raj Rajaratnam, who was funding a group with alleged close ties to the Tamil Tigers.
I'm not saying there was no wrong doing, but something fails the smell test.
Raj Gupta was a huge Democratic Party fundraiser, so much so that his status within the party was the lede in many stories written about the case. Yet it was a Democratic administration that he helped put into power that took him down.
Note that the SEC tends to focus on public-company stuff, so the industry isn't that big. How many F500 c-suite execs are there?
Wow. Play all _or else_ is what it sounds like they told him.. and then followed through :(
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It's probable Nacchio was trading stock illegally. It's also not surprising the feds would use whatever leverage they could to obtain compliance. Cops recruit snitches all the time using similar tactics.
The difference is that snitches exist to inform police of criminal activity, not to spy (or enable spying) on their customers.
The difference is that snitches exist to inform police of criminal activity, not to spy (or enable spying) on their customers.