Joseph Nacchio, former CEO of Qwest, recent release from prison evokes memories of the various financial fiascos in the communications industry during the Enron Era. (( WorldCom and Adelphia are discussed in my forthcoming bookDISORGANIZED CRIMESto be published by Palgrave Macmillan in November, 2013. Qwest is mentioned but no analysis of the Nacchio case is provided. See http://www.amazon.com))While current news seems focused on his remarkable physical condition achieved during his nearly four years in prison, there is also mention of Nacchios contention that the SECs case against him for securities fraud was motivated by his refusal to grant NSA access to Qwest phone records following the events of 9-11. The exposure of Prism, the NSAs gigantic communications surveillance program, through revelations by defector Edward Snowden, has re-opened comment on why the SEC went after Nacchio in the first place. Nacchio was charged and convicted of insider trading following disclosure of some $52 million of sales of Qwest stock whose market value suddenly plunged after his sales. His defense at the time was that the government came after him when he refused NSAs request for phone records.

Qwest was also involved in serious accounting scandals, and was fined $250 million by the U.S. Securities and Exchange Commission (SEC), to be split into two $125 million payments due to the poor state of Qwest’s current financial health. Among the transactions in question were a series of deals from 1999 to 2001 with Enron’s broadband division which may have helped Enron conceal losses. In 2005, former Chairman and chief executive officer (CEO) Joseph Nacchio and other former Qwest employees were accused of fraud in a civil lawsuit filed by the SEC. Nacchio was convicted of 19 counts of insider trading in Qwest stock on April 19, 2007. (( http://en.wikipedia.org/wiki/Qwest))

The Qwest story should be important to investors who are concerned with the current spate of revealed corporate misgovernance, and the continuing efforts of the Governments attempt to achieve very large fines against corporate misbehavers such as JP Morgan Chase. Our criticism of government regulatory efforts to protect the interests of everyday shareholders of these companies is that the fines are essentially paid for by the actual victims of the misgovernance. Officers and directors are often not punished for these invasions of shareholder property. Nacchio is one of the few made to suffer for his crimes.

In the case of JPM, the current talk is of an 11 billion dollar fine that would be a record payment by a firm to the Government. 11 billion in fines amounts to about $3.80 per share. Compare that to JPMs reported EPS of $5.20 per share. A fine of this magnitude, large though it is, will not put JPM into bankruptcy. Paying out some 73% of its total net income for the year is not a trivial slap on the wrist of JPM. The real issue is whose wrist is being slapped who gets to pay the bill The same result emerges from the various news reports of victories in shareholder law suits against public companies when other peoples money is at stake. The officers and boards of these offenders are not usually punished— but the stockholders themselves pay. Somehow, that kind of punishment doesnt seem to fit the crime. Real corporate governance reform has to attack the perpetrators not the victims of the crime. That raises the issue of who has captured the regulators