Case may hinge on witness
Appellate judges show concern that law professor couldn't
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
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
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,
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
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
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
"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
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,"
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
"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
"(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."
professor of law
"I would say at least 2- to-1 in favor of Nacchio."
professor of law, predicting the panel's decision
Key issues in the Nacchio appeal
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.
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.
The jury instructions were incorrect, the defense said.
Judge Michael McConnell said the instructions may have been
vague, but they weren't incorrect.
Nacchio did not get to present his classified information
defense, and the defense said his sentence and penalties should
The judges did not address either issue.
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.