Nacchio defense may not have revealed full
By Jeff Smith
Rocky Mountain News
Thursday, March 8, 2007
Joe Nacchio's attorneys and prosecutors have huddled in closed
hearings recently, jostling over classified material that may be
admitted at trial. But is that just a diversion?
While Nacchio's legal team has strongly indicated it will pursue
a national-security defense, that doesn't mean it will be the
main defense at his insider-trading trial starting March 19 in
Denver, an expert said.
"It may lead to the impression that this is the only defense
they have," said John Cline, a California attorney who helped
handle the classified information for Lewis "Scooter" Libby's
defense team. "This is just the one they have to offer
pretrial. It may turn out to be the key to their defense, or it
may turn out to be a small part of their defense."
Cline, now with the law firm Jones Day in San Francisco, also
worked on cases involving scientist Wen Ho Lee (who was accused
of mishandling nuclear secrets) and former National Security
Council aide Oliver North.
Cline said how a prosecution's witnesses do at trial may affect
The federal government accuses Nacchio of accelerating his stock
sales during the first five months of 2001 while being warned
the Denver telco's forecasts were a stretch. Nacchio faces 42
counts of insider trading in connection with more than $100
million of sales.
Nacchio's attorneys have argued he possessed classified
information that led him to reasonably believe Qwest would be
landing lucrative federal contracts.
Classified information has played a role in a number of trials
over the years, including those of convicted Oklahoma City
bomber Timothy McVeigh, convicted Sept. 11, 2001, terrorist
Zacarias Moussaoui, and, most recently, Libby, former chief of
staff for Vice President Dick Cheney. Libby was convicted this
week of perjury and obstruction of justice.
The Classified Information Procedures Act, enacted by Congress
in 1980, spells out how parties are to handle secret
The process involves getting national security clearances for
the attorneys and judge so they can examine the materials,
protecting the information at secure sites, and holding closed
hearings in which the defense and prosecutors argue before a
judge about the relevance of the information.
CIPA "requires the defense to lay out its theory in great
detail," Cline said. To even the playing field, the government
has been ordered to turn over the rebuttal evidence it
anticipates using at trial.
In some cases, the government may decide to drop a prosecution
rather than risk disclosure of sensitive matters. Nacchio's
attorneys sprung the national security defense just as he was
about to be indicted in late 2005.
With the hands now shown, the defense may or may not decide to
pursue the defense as its main strategy.
"For any number of reasons, the defense may decide to forgo" the
national security defense, Cline said -- or make it a minor part
of the defense.
Cline wouldn't discuss the Libby case. But news reports
indicate the use of classified information was limited by the
judge after Libby decided not to testify.
Nacchio's attorneys have alluded to other defenses, such as
maintaining that the warnings he received about Qwest's
prospects didn't constitute material information required to be
disclosed to investors.
Cline has read about Nacchio's national-security defense in
general, and "the basic theory makes sense to me, if that's what
the guy's state of mind was."
Others, such as former federal prosecutor Chris Bebel in Texas,
have said the strategy seems "desperate" but represents "clever
State of mind is a critical aspect of the case.
U.S. District Judge Edward Nottingham has ruled the government
must show Nacchio had a willful intent to defraud. That means
Nacchio needs to be found guilty of more than just an honest
The defense argues Nacchio reasonably anticipated Qwest was in
line to land hundreds of millions of dollars of sensitive
federal contracts that would more than offset the negative
warnings he was receiving about the company's prospects.
"We intend to prove that Mr. Nacchio's knowledge was not shared
with any of the Qwest employees alleged to have given him
'warnings,' " his attorneys said in a filing made public in
Nacchio's attorneys maintain clandestine agencies approached
Qwest to take on "top secret, national-security-related
projects," including a new fiber-optic network to Europe and the
Middle East. Some already were Qwest customers.
Prosecutor Leo Wise, who has a background in naval intelligence,
said in court recently the government has evidence that
contradicts Nacchio's version of events. Wise specifically
referred to discussions that Nacchio maintained resulted in a
government contract, while the agency said the talks had broken
What makes the national security defense tricky in part is that
the judge has to approve "substitutions," or summaries that
reflect the relevant evidence without giving away national
secrets. Those substitutions will be presented to the jury and
may omit things such as sensitive details of a contract or the
name of a clandestine agency.
The substitutions have to provide substantially the same ability
for Nacchio to mount a full defense as would the actual
classified materials, Cline said.
"It's a tough call for the judge to make, particularly if Mr.
Nacchio ends up testifying. Substitutions are a difficult
In the Nacchio case, Nottingham indicated some substitutions
have yet to be resolved.
Several legal experts have said that if Nacchio is convicted,
his attorneys may argue on appeal that certain critical evidence
was withheld from the jury. Nottingham already has ruled some
classified information is irrelevant.
Nacchio's attorneys have revealed their national-security
defense theory in full, but it's too early to know whether that
will be the key defense in the former Qwest chief executive's
insider-trading trial. Here are some of the arguments that may
be used, likely in combination:
• National security: Nacchio possessed
classified information that led him to reasonably believe Qwest
would land secret federal contracts that would more than offset
the negative warnings he was receiving about the company's
• Materiality: None of the warnings Nacchio
received was material enough to require disclosure to investors.
• Willful intent: Nacchio acted in good faith;
he made honest mistakes or miscalculations.
• Stock sales: Nacchio was advised to sell stock
holdings in the first five months of 2001 even though he thought
it was still a good stock to buy.