On May 11, 2006, USA Today reported that Qwest CEO Nacchio and his lawyers asked the government to take its request to the FISA court, or to get a letter of authorization from the attorney general's office. When the government refused, Qwest refused to grant access to its customers' records, leaving the data-mining program with a Qwest-size hole in its database -- including portions of 14 states in the West and Northwest. There were bound to be repercussions. As USA Today's Leslie Cauley writes:

The NSA, which needed Qwest's participation to completely cover the country, pushed back hard. Trying to put pressure on Qwest, NSA representatives pointedly told Qwest that it was the lone holdout among the big telecommunications companies. It also tried appealing to Qwest's patriotic side: In one meeting, an NSA representative suggested that Qwest's refusal to contribute to the database could compromise national security, one person recalled. In addition, the agency suggested that Qwest's foot-dragging might affect its ability to get future classified work with the government. Like other big telecommunications companies, Qwest already had classified contracts and hoped to get more.

This was no minor threat. In the telecommunications world, companies cannot remain competitive without the government contracts that keep them afloat. Market analysts of government business at INPUT recently released a report stating that the Department of Defense is the "leading spender on telecommunications products and services in the federal government. This situation is contrary to the general rule that civilian agencies outspend the DoD on information technology."

Tracking Qwest

The famed ego of Joe Nacchio, not a well-liked character, has made him something of a notorious Denver personality. The tough guy from New Jersey with oversize britches was finally ousted from Qwest and subjected to a three-year-long Department of Justice investigation that ended with Nacchio facing 42 counts of insider trading. A mini-Enron of sorts, but with one substantial difference: Nacchio claims that he was anticipating secret government contracts that were never delivered.

He had reason to believe something would be coming his way.

In early 2001, President Bush appointed him chairman of the National Security Telecommunications Advisory Committee -- a group that works to keep the president up to date on national security issues that involve telecommunication infrastructure. A Denver telecommunications analyst, Donna Jaegers, recalls a meeting with Nacchio in which he was "gaga" over the possibility of certain government contracts. It was while he was serving on the committee that Nacchio allegedly inflated the value of Qwest. And it was also while he was on the committee, claims Nacchio lawyer Herbert Stern, that Nacchio was approached by the government with a request to access private telephone records of Qwest customers.

As the story goes, Nacchio refused. While the refusal may be due, in part, to an altruistic defense of consumer privacy, there also existed the very real threat of privacy lawsuits for handing over consumer information without appropriate warrants. To wit, AT&T, Verizon and a handful of other companies are currently facing some $5 billion in damage claims if found guilty of violating telecommunications laws.

After making the initial statement about his client's refusal to participate in the data-mining program, Stern has remained mum, refusing all press inquiries.

In an interview, Cliff Stricklin, a prosecutor from Stern's opposition, simply grins and urges me to look up a legal strategy called "graymail."

Graymail: (n.) a maneuver used by the defense in a spy trial whereby the government is threatened with the revelation of national secrets unless the case against the defendant is dropped.

In other words: Take me to court and I'll reveal state secrets. Nacchio's defense team ended up making the secret contracts a minor part of his defense due to rulings from the judge in closed sessions regarding classified information. It is likely that this defense will resurface in his appeal or his upcoming defense against the SEC's charges of accounting fraud.

Twenty-six years into a career at AT&T, Nacchio was thought to be next in line to former AT&T Chairman Robert Allen. When he was passed up, he went his own way, building Qwest into a competitor to his former employer. As former Denver prosecutor Craig Silverman told a local reporter, "Nacchio used to be part of George W. Bush's team, but now the Justice Department is trying to take all of his money and freedom." History repeats itself: Nacchio is once again a disgruntled former employee and he's not going down without a fight. It's a good old-fashioned grudge match with cocky foes threatening to air the others' dirty laundry.

Graymail may not be a remarkably unique concept, but the sudden evaporation of this close, security-level relationship and the timing of the Justice Department's investigation are suggestive of government retribution. Bruce Afran, one of the lawyers leading the class-action suit against AT&T and Verizon for their participation in the government's data-mining program, has followed the Nacchio case closely. When pressed during an interview, Afran chooses his words carefully: "We can't ignore that Nacchio has been the only one to refuse to participate in the program, and that he was then indicted." Afran explains that, because chief executives are paid in shares or options, they're always selling shares. "Whenever you want to take revenge on an uncooperative CEO, all you need to do is charge him with insider trading," says Afran, referring to a strategy commonly known as "selective prosecution." He pauses, sips from his coffee, leans in a bit, and says, "As a lawyer, I think this is clearly a pretext for punishing him for failing to go along with their [the government's] program."

Even if you don't buy that Nacchio's indictment for insider trading is payback for his refusal to participate in the president's data-mining program, Nacchio's former company, Qwest, has taken some hard knocks in the business world. Knocks that, given the soaring stocks and the unprecedented merger success of other companies implicated in data mining, become all the more salient.

When I tried to meet with a legal adviser of Qwest, I encountered Qwest spokesman Bob Toevs. Toevs thanked me for repeatedly "reaching out" in my requests for an interview regarding the harsh regulations the Justice Department has imposed on Qwest deals. When I tried to sidestep Toevs by sending direct e-mails to two Qwest employees, I got another e-mail from Toevs thanking me again for my attempt to reach out to his team, again refusing, and wishing me safe travel home.

Curiously, the three Denver reporters I spoke to told me how helpful Toevs had been. "Perhaps," one reporter told me outside of Nacchio's hearing, "they don't want to talk about the bad luck they've had." With a new CEO leading the company slowly out of debt, it's likely Qwest is interested in leaving the past behind -- and avoiding rehashing any unpleasantries that could hurt its chances of winning government contracts. One telecommunications expert who agreed to speak only without being identified summed up the past two years of mergers like this: "It's as if AT&T and Verizon can't lose." It is widely acknowledged that Qwest has not been so lucky -- becoming fodder in the D.C. rumor mill. Celebrated intellectual property and trade regulation lawyer Gary Reback heard a rumor from some D.C. lawyers and lobbyists that Qwest was being disadvantaged for not participating in the data-mining program.

In 2003, Qwest announced that it had reached an agreement to acquire most of the assets of a small, bankrupt company called Allegiance. The Department of Justice agreed to the deal, but only if stringent conditions were met -- divestiture of every single piece of Allegiance's network that was inside of Qwest's territory. After a long period of bidding, Qwest ended up losing the deal to another company. In 2005, Qwest tried again to expand its holdings by merging with MCI. Qwest and Verizon were engaged in a bidding war -- if you can call it that -- for MCI, with Qwest consistently offering MCI a higher bid -- in the end, $9.9 billion to Verizon's $8.45 billion. Yet, Verizon somehow won out.