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Nacchio Judge May Set Trial Date, Rule on Dismissal Request Today
By Shawn Young
The Wall Street Journal
Friday, March 24, 2006

A U.S. district-court judge in Denver today is expected to set a trial date for Joseph Nacchio, the former Qwest Communications International Inc. chief executive charged with 42 counts of criminal insider trading.

Judge Edward Nottingham may also rule on defense arguments for dismissal of the charges, which carry a potential prison sentence of 10 years for each count and a financial penalty of more than $100 million.

U.S. Attorney William Leone alleges Mr. Nacchio illegally sold $101 million worth of the Denver-based phone company's stock in 2001 when he knew the company wasn't doing as well as it had led investors to believe. The defense says prosecutors have presented a flimsy and flawed case.

Attempts to have the charges dismissed are commonplace and carry virtually no risk for defendants, and they are rarely entirely successful, say white-collar-crime attorneys not involved in the case.

Herbert Stern, Mr. Nacchio's attorney, says his client had nothing more than vaguely worded, speculative warnings from other executives that the company might not meet financial targets if business didn't improve. That isn't the same as knowing that the company has actually faltered, according to court filings by the defense. The defense also argues that the information Mr. Nacchio had was, by definition, not significant since the prosecution hasn't claimed that it needed to be disclosed to investors.

"It's a pretty good argument to say the information wasn't material if it didn't need to be disclosed. It's an argument that has a lot of logical appeal," says Matt Jacobs, a partner at McDermott Will & Emery, a law firm based in Palo Alto, Calif., that isn't involved in the case.

But some other attorneys also not involved in the matter say they doubt the defense will persuade the judge to drop the case. "It's too cute by half," says Joseph Allerhand, a partner at Weil, Gotshal & Manges LLP in New York. Companies and executives aren't required to disclose every material fact in real time, says Mr. Allerhand. Such a requirement would make it impossible to run a business.

In its filings, the prosecution has argued that insiders can have material information they don't have to disclose, but if they do, they may not trade on it. Mr. Allerhand says a key issue at the trial is likely to be whether Mr. Nacchio knowingly violated rules that barred him from trading.

Qwest restated $2.5 billion in revenue and $2.2 billion in earnings for 2000 and 2001. Mr. Nacchio isn't accused of falsifying the company's books.

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