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.
-
Rachel Reeves faces £23 billion capital gains tax “black hole” – will she be forced to look elsewhere?The fiscal watchdog has downgraded its forecast for capital gains tax revenues, leaving chancellor Rachel Reeves with £23 billion less than previously expected
-
Protests erupt in Turkey after the arrest of Erdogan's rivalTurkey's president has jailed his main political opponent, Ekrem Imamoglu
-
Protests erupt in Turkey after the arrest of president Erdogan's rivalTurkey's president has jailed his main political opponent, Ekrem Imamoglu
-
What is the Mar-a-Lago Accord and why is it getting attention from Wall Street?On Wall Street, there is talk that Trump's tariffs aim to make the world’s leaders come crawling to Mar-a-Lago, his Florida residence
-
Palmer Luckey: the billionaire flame of the westProfile Palmer Luckey started Oculus, the virtual-reality headset business, and sold it to Facebook for $2bn. Now he’s set his sights on the arms race.
-
Spring Statement: Rachel Reeves 'must turn good intentions into effective measures'Opinion Chancellor Rachel Reeves understands the economy’s structural problems but is unlikely to solve them, says Max King
-
Boaz Weinstein: the hedge fund ‘vulture’ swooping on the CityProfile Boaz Weinstein’s campaign to take over and transform “the Miserable Seven” London-based investment trusts has been routed – for now. The fight isn’t over yet
-
England's department stores return – but do they have a future?Opinion The great traditional retail shops of Middle England have bounced back for now. Don’t get too carried away though, says Matthew Lynn
-
Can investors stay optimistic about Russian stocks?Investors look to profit from Russia as Trump pushes for peace in Ukraine. But is it worth the risk?
-
Labour's 'Project Chainsaw' begins by abolishing NHS England – will it backfire?Keir Starmer is taking the fight to the blockers, the NIMBYs, public sector workers and the unions says Emily Hohler. What happens if Labour fails to deliver?
