Court unlikely to toss conviction, experts say
By Sara Burnett and Jeff Smith
Rocky Mountain News
Thursday, October 11, 2007

Former Qwest CEO Joe Nacchio could get a new trial based on his appeal, but it's unlikely the appellate court will throw out his insider-trading conviction completely, legal observers said Wednesday.  "I find (an acquittal) extremely remote," said University of Denver professor and attorney Kevin O'Brien after reading the 58-page brief outlining Nacchio's case.  "It's a clear question:  Does he get a new trial?"

While O'Brien said the appeal looked "very convincing," he also said the arguments will be best judged in November after the government has filed its response.

Attorneys for both sides are scheduled for oral arguments before the 10th Circuit Court of Appeals on Dec. 18.

In the appeal filed Tuesday, Nacchio appallate attorney Maureen Mahoney argued the former CEO was indicted, tried and convicted "in an atmosphere of prejudgment and vitriol" and should be acquitted or receive a new trial or a lesser sentence.

Nacchio was convicted in April of 19 counts of insider trading.  In July, U.S. District Judge Edward Nottingham sentenced him to six years in a federal prison and ordered him to pay a $19 million fine and forfeit the $52 million prosecutors said he made from the illegal sales.

A three-judge 10th Circuit panel later ruled Nacchio could remain free pending his appeal.  The money for the fine and forfeiture is being held in accounts and may not be moved until the appeal is complete.

At trial, prosecutors argued Nacchio knew when he sold stock between January 2001 and May 2001 that Qwest was relying too heavily on one-time sales of space on its fiber-optic network.  The CEO knew those sales weren't sustainable, yet he opted not to share that information with shareholders, even as he sold his own stock, prosecutors said.

In the appeal, Nacchio's attorneys called the prosecution "unprecedented."  Insider trading cases usually are based on the fact that the insider had "hard" information, such as knowledge of a pending merger -- not on projections for eight or nine months later, as was the case for Nacchio, the appeal states.

Legal experts said the most persuasive of the main arguments raised in the appeal was the claim that the jury received flawed instructions.

Nacchio had requested jurors be told that forward-looking statement, or long-term financial projections, may not be considered material.  Instead the judge instructed jurors that the projections were similar to any other information available to the CEO that a reasonable investor might find important in making a decision oon whether to sell.

Tony Leffert, a former federal prosecutor now working at the Denver law firm Robinson Waters & O'Dorisio, said the appeals court could determine that was error enough to overturn the conviction.

Nacchio's appeal also deals with his classified information defense.  That portion of the appeal was filed under seal and not available to the public.

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