The Association of U S West Retirees



Case may hinge on witness
Appellate judges show concern that law professor couldn't testify
By Sara Burnett and Jeff Smith
Wednesday, December 19, 2007

Three judges hearing Joe Nacchio's appeal Tuesday seemed troubled that a defense witness was not allowed to give key testimony at his insider-trading trial -- an issue that could lead to a reversal of his conviction and a new trial for the former Qwest CEO.

Nacchio did not attend the hearing and was not required to do so.

His defense attorney, Maureen Mahoney, said testimony from Daniel Fischel, a law professor who has testified in several high-profile corporate fraud cases, "went to the heart of the case."

Fischel would have said that the inside information Nacchio had when he sold stock was not material and was not required by law to be disclosed to investors, Mahoney said.

But U.S. District Judge Edward Nottingham excluded the testimony because the defense didn't provide the basis for Fischel's opinions, as required.

Judge Paul J. Kelly, one of three 10th Circuit Court of Appeals judges who will decide the case, said that at a minimum, Nottingham should have held a hearing on the matter.

"Wouldn't that have been the sane thing to do?" Kelly asked.  Moments later, he added sarcastically:  "Why muddle the record with facts?"

The comment brought laughs from the packed courtroom -- and in particular, from Nacchio's defense team.  But Assistant U.S. Attorney Stephan Oestreicher noted that the defense never asked for a hearing such as the one Kelly said should have taken place.

The former CEO was convicted in April of 19 counts of insider trading for selling stock in April and May 2001.

Prosecutors said he should have told investors before he sold that Qwest couldn't make its 2001 revenue goals because it was depending too much on unsustainable, one-time sales of space on its fiber optic network.

In July, Nottingham sentenced Nacchio to six years in prison, and ordered him to forfeit $52 million and pay $19 million in fines.

Legal observers predicted that Fischel's testimony will be the issue the judges focus on the most and that it could get Nacchio a new trial.

"I would say at least 2-to-1, in favor of Nacchio," said John Holcomb, a University of Denver law professor who has followed the case.

Jay Brown, another DU professor, agreed.  But he also said it was possible the judges will decide that the defense erred by not asking for a hearing on Fischel's exclusion, and the panel could uphold the conviction.

Two of the judges also questioned whether the inside information Nacchio had when he sold stock was material.  If they conclude it was not, Nacchio could be acquitted.

Kelly seemed to be clearly aligned with Nacchio, Holcomb and Brown said.

"Kelly was angry, both at the trial judge and also, I think, at his perception that the government is trying to put executive officers in an untenable position," Brown added.

Judge Michael W. McConnell seemed more balanced, and Judge Jerome A. Holmes was the most friendly to the government, they said.

But Marcy Glenn, chairwoman of the appellate practice group at Holland & Hart law firm, said that sometimes the questions judges ask are indicative of their positions, "and other times you can be severely misled."

She wouldn't predict how the panel will rule.  "What I've learned (over the years) is the folly in drawing conclusions," Glenn said.

Neither Nacchio's attorneys nor government prosecutors commented after the hearing.

What they're saying

Reactions from observers at Tuesday's hearing.

"It's hard to predict (how the appellate panel will rule).  It's a flip of the coin. . . . We just have to put it in the hands of the court and pray for justice."

Mimi Hull, president of the Association of U S West Retirees

"On the whole it seems to me the argument went a little bit better for the defense than the government . . . (but) what I've learned (over the years) is the folly in drawing conclusions."

Marcy Glenn, chairwoman of Holland & Hart's appellate practice

"(Judge Paul J.) Kelly was angry, both at the trial judge and also, I think, at his perception that the government is trying to put executive officers in an untenable position."

Jay Brown, University of Denver professor of law

"I would say at least 2- to-1 in favor of Nacchio."

John Holcomb, University of Denver professor of law, predicting the panel's decision

Key issues in the Nacchio appeal

Expert witness

Daniel Fischel, an important defense expert, was not allowed to testify that the inside information Joe Nacchio had was not material and did not have to be disclosed before he sold stock.

This was one of the most discussed issues. Judge Paul J. Kelly said that the judge "wouldn't even let the (defense) speak to the issue" of whether Fischel could testify and that a hearing should have been held.

Nacchio's knowledge

The information Nacchio had was a prediction, not a hard fact, and didn't have to be disclosed, the defense said.  Any potential shortfalls in revenue were not large enough to be material or relevant to investors.

Judges questioned whether upholding the conviction would open the door for frequent prosecutions of corporate executives whose companies missed earnings projections.

Judge's instructions

The jury instructions were incorrect, the defense said.

Judge Michael McConnell said the instructions may have been vague, but they weren't incorrect.

Defense disallowed

Nacchio did not get to present his classified information defense, and the defense said his sentence and penalties should be reduced.

The judges did not address either issue.

What's next

The three-judge panel will rule at an undetermined time but has put the case on an expedited schedule. The decision requires only a majority vote.

The panel could affirm the conviction, reverse the conviction and order a new trial, or throw out the conviction entirely, resulting in acquittal.

If the conviction is affirmed, Nacchio could ask the panel to reconsider, appeal to the full 10th Circuit Court of Appeals or appeal to the U.S. Supreme Court.