

The Story Of Joseph Nacchio And The NSA - Esifer
http://www.businessinsider.com/the-story-of-joseph-nacchio-and-the-nsa-2013-6

======
tptacek
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.

~~~
etherael
> 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.

~~~
tptacek
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.

~~~
etherael
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

~~~
tptacek
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.

~~~
etherael
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?

~~~
tptacek
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.

~~~
etherael
> 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.

~~~
tptacek
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.

------
jessaustin
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!

~~~
etherael
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.

------
lmg643
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.

------
smutticus
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://www.denverpost.com/business/ci_7230967?source=commented)

[http://usatoday30.usatoday.com/news/washington/2006-05-10-ns...](http://usatoday30.usatoday.com/news/washington/2006-05-10-nsa_x.htm)

[http://www.denverpost.com/nacchio/ci_11786798](http://www.denverpost.com/nacchio/ci_11786798)

------
rayiner
...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."

~~~
salem
Selective enforcement?

There don't seem to be that many cases:
[http://www.sec.gov/spotlight/insidertrading/cases.shtml](http://www.sec.gov/spotlight/insidertrading/cases.shtml)

~~~
rayiner
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...](http://www.mofo.com/files/Uploads/Images/130116-Insider-Trading-
Annual-Review.pdf) (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.

~~~
salem
"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.

~~~
tptacek
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.

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johng
Wow. Play all _or else_ is what it sounds like they told him.. and then
followed through :(

------
squozzer
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.

