The Association of U S West Retirees



New precedent is only certainty
By Scott Robinson
Rocky Mountain News
Wednesday, December 19, 2007

Will the Nacchio conviction survive appeal?

While it is tempting to predict that it won't, based on the thrust and tenor of the questions asked by two of the three judges during Tuesday's extended oral argument, experience teaches that judges' inquiries in such hearings aren't always the most reliable indicators.

Forecasting the outcome of an appeal ought to be much easier than foretelling a jury verdict, where the analysis includes not only the testimony and exhibits but also the effect of that evidence on 12 different people.

Issues on appeal are limited to those raised in briefs.  All that the 10th Circuit Court of Appeals has to do is apply established legal precedents, prior written opinions or "case law" issued by the U.S. Supreme Court or any of the federal appellate courts.

Therein lies part of the problem:  Joe Nacchio was prosecuted under an unusual theory, with the defense unsuccessfully attempting to use an equally innovative defense.  On both fronts, legal precedent is in short supply.

Instead of going after Nacchio for making false statements or accounting fraud, tactics not always successful in past corporate wrongdoing cases, the government instead charged him with insider trading, using his sales of nearly $100 million of Qwest stock in the first six months of 2001 as proof that he traded on inside information -- in the form of warnings given to Nacchio by other Qwest executives that the company would have difficulty reaching its publicly announced earnings goals.

Insider-trading prosecutions usually involve a one-time purchase or sale of stock by a corporate executive in anticipation of a definite future transaction, not earnings predictions.

Nacchio's trial attorneys sought to counter with a defense borrowed from civil securities fraud cases that a corporate insider cannot be held culpable for "forward-looking" earnings projections, if accompanied by cautionary "risk disclosures" about the uncertainty of the investment.

Nacchio could not be convicted for selling off stock as "insider trading," the defense argued, since his public pronouncements heralding Qwest's rosy economic future were accompanied by warnings about the risks.

Appeals are not about guilt or innocence.  The panel hearing the case will decide if Nacchio received a fair trial.

As soon became obvious from the exchanges between the judges and the attorneys Tuesday, it will come down to whether there was enough evidence to convict him of insider trading based on what he knew at the time of the stock sales, whether the jury was properly told what was "material" information for insider trading purposes and whether there was any justification for the extreme limitations placed on the testimony of the sole defense expert witness, Daniel Fischel, by the trial court, Judge Edward Nottingham.

While it appears the majority of the panel leans toward reversing Nacchio's conviction and granting him a new trial, one thing about their decision can be predicted with certainty:  A significant legal precedent will be established.

Scott Robinson is a Denver trial lawyer specializing in personal injury and criminal defense.