Spirit of Disservice

Dick Caldwell lost $100,000 of his retirement savings because of stock fraud at Qwest

Dick Caldwell lost $100,000 of his retirement savings because of stock fraud at Qwest

Dick Caldwell hasn't lost his fight. Though he has suffered a heart attack and a brain hemorrhage that left him a paraplegic, the 72-year-old still has a sharp mind. His eyes light up on this recent Saturday afternoon as he thumbs through a stack of newspaper clips. He is a man driven by revenge.

In 1974, Caldwell was a loyal employee of what was then referred to as "the phone company." A former City Hall reporter for the Minneapolis Star, he fell into a job writing speeches for the CEO of Northwestern Bell. Caldwell was nearly 40 at the time, but was soon pulling 80-hour workweeks in the baby Bell's PR department. He relished the job—"Four deadlines a day," Caldwell recalls—and worked hard for less pay on the promise that his retirement benefits would have him well-heeled.

In 1990, after 16 years on the job, Caldwell took an early retirement package. The attractive plan guaranteed health benefits, a solid life insurance policy, and a savings plan heavily staked to the company's continued success. Caldwell, like many, believed it was a safe play, since the phone company had for decades been a blue-chip stock.

Then his retirement portfolio ended up in the hands of Qwest, the local phone service provider that tanked after the dot-com bust in 2001. Caldwell lost, by his estimation, some $100,000. That's why he kept the news clips.

"I figured I could write a book about the rise and fall of the company," Caldwell says. "It might not get my money back, but that way, someone would know the affront that happened to the people who worked for this company."

It's a stretch to remember Northwestern Bell now, but at one point it was the local arm of AT&T—a company that had roots going back to Alexander Graham Bell. In 1899, AT&T took over a series of local phone companies called the Bell System, effectively running 80 percent of the phone service in the country. By the 1980s, AT&T and the Bell System had a million employees, half of them with the baby Bells, which accounted for $80 billion in annual revenues. Northwestern Bell served the Dakotas, Iowa, Nebraska, and Minnesota. Despite the company's size, AT&T and its subsidiaries felt like a family business: Ma Bell was the nickname, after all.

Because the government regulated the company, salaries were humble, but employees were loyal anyway.

"The phone company didn't pay much," recalls Tom Lee, a Hopkins resident who put in 34 years in the public relations department. "But they always told you that the benefits were the best in the world, and they were."

It wouldn't last. In 1984, the federal government broke up AT&T and the baby Bells. Three years later, Northwestern Bell became U S West, a company composed of three baby Bells in 14 states. In 2000, Qwest—a smaller, Denver-based telecom—bought U S West for $43.5 billion. Qwest CEO Joe Nacchio negotiated the hostile takeover, allowing a sleepy local telecom to go global almost overnight.

"The whole corporate culture changed," says Dave Cosgrove of Bloomington, who worked at the company for 30 years. "They had no respect for the remaining U S West workers. They didn't even have respect for the notion that it was a phone company."

Hired in 1997, Nacchio, who was once an AT&T executive, turned what had been a stable Ma Bell subsidiary into a volatile global company in the new economy. The tough-talking, Brooklyn-raised son of an Italian immigrant, Nacchio's hard-knuckle business tactics were legendary. He greatly expanded Qwest's reach, trying to take its broadband capabilities global. After the takeover of U S West, Nacchio even started a European branch of Qwest, and continued to show massive profits, at least on paper.

But in the wake of accounting scandals at Enron and WorldCom, Wall Street took a second look at Qwest's finances. Analysts saw that the company was counting one-time revenues repeatedly, artificially inflating the company's bottom line. In the wake of the revelation, the company's stock tumbled from $66 a share in mid-2000 to $1.11 in August 2002. A year later, the company revised its revenue statements from the past two years, evaporating some $2.48 billion in earnings.

Employees who once envisioned posh retirement homes in Florida were now faced with the possibility of rejoining the workforce just to make ends meet.

"At this point, I'd rather not get a grocery-sacking job, but I might have to," says Lee. "Then again, I'm 70 years old, I might be too old."

Even by the standards of the dotcom bust and corporate greed at the turn of the century, Qwest's rise and fall is epic. While Enron, Tyco, and WorldCom's corporate misdeeds captured headlines, Qwest's decline was quieter, but no less unseemly. In March 2005, Nacchio and six other Qwest executives were sued by the U.S. Securities and Exchange Commission, which accused them of $3 billion worth of financial fraud between 1999 and 2002.

In December 2005, Nacchio was indicted in Denver on 42 counts of insider trading. The trial started in U.S. District Court on March 19, with prosecutors arguing that Nacchio had dumped $100.8 million in Qwest stock during the first five months of 2001, knowing that the company's finances were smoke and mirrors. Nacchio's attorneys claimed he was simply following financial forecasts for the company, and had to unload his stock because the options were set to expire.

A jury of eight men and four women deliberated for six days before pronouncing their verdict: guilty on 19 counts. Nacchio, 57, faces a maximum of 10 years in prison and $19 million in fines. He may also be ordered to forfeit some $52 million in ill-gotten earnings. Sentencing is set for July 27, but Nacchio's lawyers have said they will appeal.

Local retirees rejoiced at the jury's findings, but it won't get their money back. And now they have a new worry: They fear that current Qwest CEO Dick Notebaert will cut their health insurance benefits as the company tries to right itself.

Confined to his wheelchair, Caldwell bristles at that possibility.

"My situation is not a tragedy. What Joe Nacchio did to the company, that's a tragedy," Caldwell says. "I think Nacchio's a crook, and I'd like to punch him in the nose."