It’s 1:30 pm. I’m in the media room so my battery can charge enough to move back into the main courtroom where there are no electrical outlets for us. The parties are seated. Part I (this morning’s live blog) is here. [Note: This is not a transcript. It is my notes of the testimony and proceedings, typed as fast I can. Spelling errors will be fixed later. I will update every 15 minutes or so — you can either bookmark and check back or refresh your screen periodically.] Lee Wolfe is still on the stand undergoing direct examination by Prosecutor Wise. The second quarter 2001 earnings call was on July 24, 2001. What did you discuss with Nacchio before it occurred? I suggested we not be too bullish or give too much hype. Secondly, since the decision had been made to disclose and announce the use of the one-time transactions in the filing with the SEC, the 10Q in the middle of August, and at the investor conference to be held in August in Boston, I suggested he provide a bridge.

Mr. Nacchio was the one who decided to announce the one-timers and to put the best face possible on their disclosure. Nacchio had decided not to make the disclosure on the July 24 call. He didn’t want to muddy what he thought was a good second quarter and he wanted to devote full attention to positioning the use of the one timers when he announced them in Boston. He didn’t want analysts on the call to focus on that. The likely reaction would be they would not be happy because of their surprise at the magnitude of the transactions and the stock price would go down. The judge interjects the date timeline is missing. He would grant an objection if one were tendered. Richilano stands and objects, objection is granted. Q: When did he first discuss this issue of the one timers with Nacchio? 1999. How many times? 6 to 10, not certain. Usually they had the same type of discussion. “Can you guarantee the stock price won’t go down if we disclose? ” He told Nacchio he thought the stock price would go down. He heard this from Nacchio in 2001 as well, three or four times maybe more. Wolfe: The other way we’d get into this discussion is that he’d tell Nacchio investors really need to know. Wolfe goes to the Boston Piper Jaffrey conference, Aug 7, 2001. Before the conference, he suggested to Nacchio that he “not get clever in the way this was presented and exhibit some level of humility. ” He told N. there were concerns about his credibility. On the second quarter conference call in July, Nacchio tried to lower the earnings target without telling the investors he was doing it. He said on the call it was 17% plus. But on the first quarter call he said it was 20%. Exhibit 423 and 593 and 634 (a slide and the two calls.) 1:46 pm The quote from the first call. “We are still reconfirming our 5 year targets of 15 to 17%.” From the second call, “I know there are questions we get about can we keep our projections of 15%-plus on our revenues, 17% plus on Ebitda (?) through 2004.” Wolfe says he spoke to 20 analysts about this. They got a lot of calls and the analysts were very upset. He told Nacchio that his credibility was really being challenged, particularly with the way he dealt with this specific incident. He shared some e-mails he had received from analysts. The emails focused on loss of credibility over the way this had been handled. Q: Looking at exhibit 739, was this a document you shared with Nacchio? Yes, in preparation for the Boston meeting. It was from a Goldman Sachs analyst. (This is a different GS analyst than he was first referring to. ) Richilano voir dires on the exhibit. They fight over whether the email can be admitted. Government says it goes to Nacchio’s state of mind, not for the truth of the matter in it. They approach the bench. 1:57pm Judge announces he will amount part of it. He instructs the jury to disregard the prosecutor’s use of the word “coverup.” Wolfe reads from the exhibit. “There’s a big credibility issue now surrounding Qwest.” A year ago, people gave you the benefit of the doubt. “Now, the lack of transparency is going to hurt because investors don’t know how many cockroaches you still have in your bag.” Goes to another part of document, and then to other emails. At the Boston conference, Wolfe says Nacchio spun it as good new, saying all telecoms have some one time transactions, Qwest would rely on them less in the future but disclose them nonetheless. He and Nacchio visited analysts after the conference, which had been telecast. At these meetings they discussed how in reality the financial targets could be met. Wolfe says the stock price between June, 2001 and the Boston conference had gone down from $30 to $24. The disclosure of the one-time transactions occurred in an Aug 15 filing to the SEC. Qwest disclosed the use of one timers and how much of the total revenue during the first two quarters had been in one-timers. Wolfe spoke to investors after the filings. Most conversations were on the phone. The information he received was that the investors were very surprised about the magnitude of the one-time transactions. He shared this information with Nacchio. They thought the total amount of the one time transactions, $500,000 and $635,000 per quarter respectively, was much higher than they had anticipated. 2:12 pm Wolfe and Nacchio discussed what investors were doing with the information. Nacchio told him, “See, this is what happens when you disclose.” On Sept 10, 2001, Qwest issued a press release, held a conference call and lowered the financial targets. Wolfe discussed the timing of lowering the targets with Nacchio. Nacchio discussed with General Counsel Drake Tempest that there needed to be a discrete amount of time between the Boston conference and the lowering of targets, to give the sense the lowering was something new. Investors needed to believe Nacchio wouldn’t reasonably have known that targets were going to be lowered when he made his statements in Boston. Q: What happened when Qwest announced third quarter results? A. Analysts were upset and stock went to $12.00. They were upset because Qwest missed a lowered target. Q. On the conferece call, did investors raise concerns with Nacchio? A. I don’t have a clear recollection of the call. Bench conference. 2:20 pm Judge warns prosecutor to differentiate Wolfe’s conversations with Nacchio from Wolfe’s conversations with . Q. What reasons did Nacchio give on third quarter call for why Qwest missed its targets? A. Nacchio said the economy had worsened and the first-time market had dried up. People didn’t have cash to do long-term transactions. Q: What did you discuss with Nacchio about his stock sales in 2001? A: I had a lot of talks with him. I recommended he exercise and hold a reasonable amount of his stock options. When a CEO sells stock, the concern is that the CEO knows something bad about the company that the investors don’t know. Pass the Witness. New thread.