Joseph Nacchio was born in Brooklyn in 1949. After graduating from New York University in 1970, he went to interview for a job at Procter and Gamble, but ended up joining AT&T as an engineer after accidentally walking into the wrong interview room. By the 1980s he had risen to the position of chief engineer for AT&T’s long-distance network, and was sent to the Massachusetts Institute of Technology for management training, eventually taking over control of the division. Passed over for the top job at AT&T, he became CEO of rival telecommunications firm Qwest in 1997.
What was the scam?
Nacchio set unrealistic revenue and earnings forecasts in order to boost Qwest’s share price, and engaged in various accounting tricks so that it could appear to meet them. These included engaging in sham transactions with other telecommunications companies, where Qwest would sell capacity and then buy it back to give the impression that its sales were growing. Overall, these tricks helped Quest inflate earnings by a total of around $3bn between 1998 and 2002. During the same period, Nacchio made more than $100m by selling his shares in Qwest, even after he had been warned that the firm would miss his targets.
What happened next?
By the middle of 2001 Qwest’s share price was falling thanks to the bursting of the dotcom bubble, and to an increasing number of questions being raised about its accounting. By 2002 its share price was in freefall, and Nacchio was forced to resign in June 2002. Almost immediately afterwards Qwest was forced to restate its sales and earnings during the period that Nacchio was in charge. In 2007 Nacchio was convicted of 19 counts of insider trading and, after a long legal battle, ended up serving four years in prison.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Lessons for investors
Qwest’s share price fell from a peak of $55 in July 2000 to $40 when Nacchio sold most of his shares in early 2001, to a low of $1.11 shortly after he left – reducing its value by $89bn. Asset sales helped the company avoid bankruptcy, but the shares were still only worth around $6 when it merged with Century Link in 2010, leaving shareholders with huge losses on their investment. Qwest is a case study of what can happen when a company becomes too focused on meeting its quarterly revenues and earnings targets.
-
Spot the Dog: £67bn in underperforming funds revealedAround 137 funds consistently underperformed their benchmark, BestInvest's Spot the Dog report finds. Which funds are in the dog house?
-
What does a BP and Shell merger mean for the UK oil industry?BP’s struggles have made it vulnerable to a takeover. Could it merge with Shell to create a British behemoth?
-
Deepseek's Liang Wenfeng: the maths whizz who shook Big TechFew people had heard of Liang Wenfeng until the launch of his DeepSeek AI chatbot wiped a trillion dollars off US technology stocks. His pivot to AI was of a piece with his past exploits.
-
Donald Trump's tariffs spark a global game of thronesWe don’t know what Donald Trump intends or will do next. That is in itself damaging.
-
RedNote: the rise of the new TikTokRedNote, a Chinese rival to social-media app TikTok, has seen millions of US users flock to it in the wake of the US TikTok ban. That caught the company by surprise. What is RedNote and can its popularity last?
-
Australian tycoon Andrew Forrest battles it out with oil giant ExxonMobilIron ore billionaire Andrew Forrest made billions before committing himself to philanthropy. Now he is preparing for a showdown with ExxonMobil.
-
Remembering Sir David McMurtry: Renishaw founder and Concorde engineerSir David McMurtry, co-founder of Renishaw, made a unique contribution to Britain. We look back at his legacy
-
Low Tuck Kwong: the Indonesian mining billionaire who is benefitting from coal boomLow Tuck Kwong’s coal business was in deep trouble a decade ago with no future. Now, he is riding the waves of a global coal boom
-
David Montgomery's potential new ally as he seeks to buy The TelegraphVeteran media mogul David Montgomery has seen off a bid for his media group National World. But he now has his eye on The Telegraph
-
Elon Musk to Taylor Swift - the four key figures who moved markets in 2024We look at the four most influential people in 2024 who moved markets – from Elon Musk reshaping US politics to Rachel Reeves struggling as Britain's chancellor
