shoots down Nacchio's strategy
U.S. attorney says indictments sound after dismissal bid
By Jeff Smith
Rocky Mountain News
Tuesday, February 28, 2006
Former Qwest chief executive Joe Nacchio's attempt to get 42
insider-trading charges against him dismissed before trial
is almost sure to be denied, a securities expert said.
Nacchio recently argued the government's indictment, handed
down in December, was vague and legally deficient, and
should be dismissed. His attorneys claim the information
Nacchio allegedly possessed in 2001 failed to rise to the
level of being material enough to require disclosure to
U.S. Attorney for Colorado William Leone responded Friday
that the government's indictment is sufficient and that
prosecutors aren't required in advance to identify how the
information was material or their legal theory.
John Coffee, an expert in securities law and a professor at
the Columbia Law School in New York, concurred when asked
recently about the case.
"You should understand that in every white-collar case,
there is a motion to dismiss the indictment as legally
insufficient and it loses in 95 percent of the cases,"
Coffee wrote by e-mail. "The issue of whether information
-- including information that the company will fall short of
its projected earnings -- is material is one for the jury
and cannot be dismissed as a matter of law."
Nacchio is accused of dumping more than $100 million of
Qwest stock in the first five months of 2001 based on
insider information. Prosecutors charge that Nacchio was
warned that Qwest's financial targets were a "huge stretch"
and likely not attainable. Qwest resorted to questionable
one-time deals in order to make its numbers, prosecutors
Nacchio's attorneys argue that being warned about financial
risks is hardly the stuff of material information that must
"The defendant is wrong," Leone countered in Friday's
filing. "Materiality is proved by showing a substantial
likelihood that a reasonable investor would have considered
the information important in deciding to buy or sell Qwest
Nacchio's attorneys also claim the government's indictment
conceded that Qwest's financial reports were accurate at the
time. That's been seen as an attempt to argue the
government must prove Qwest's results were deliberately
Leone countered that the "government has never conceded,
expressly or otherwise, that Qwest's financial reporting
during the relevant period was fully accurate and complete."
In fact, Qwest subsequently erased more than $2.5 billion of
revenue and profits from its 2000 and 2001 books.
Coffee wrote that the prosecution doesn't have to allege
accounting fraud in order to prove insider trading.
Nacchio's legal team also is fighting for all the details it
can get underlying the allegations in the eight-page
indictment. It recently asked for "particulars" covering 14
areas and more than 50 subparts.
Leone, who is fighting the request, called it "simply an
effort to require the government to designate which
witnesses and evidence it might rely on to prove certain
aspects of its case."