Long wait for Nacchio verdict?
attorney calls ruling a 'setback, not a defeat,' ponders next
By Sara Burnett
Rocky Mountain News
Tuesday, March 18, 2008
A federal appeals court decision to grant Joe Nacchio a new
trial means it could be years before the former Qwest CEO either
goes to prison for insider trading or walks away a free -- and
vindicated -- man.
In a 2-1 ruling, a panel of the 10th Circuit Court of Appeals on
Monday reversed Nacchio's 2007 insider-trading conviction and
sent the case back for a new trial before a different judge.
The panel said U.S. District Judge Edward Nottingham improperly
excluded testimony from defense expert Daniel Fischel. Fischel
would have told jurors that the inside information Nacchio had
when he sold stock was not material and it did not affect the
stock price when it was disclosed.
Prosecutors are expected to appeal the decision.
Meanwhile, Nacchio remains free on $2 million bail, though he
still faces criminal charges and is not allowed to leave the
"We are very gratified and view this as a first step in Joe's
ultimate vindication," said his attorney, Herbert Stern.
Nacchio could not be reached for comment, and Stern declined to
answer a question on his whereabouts.
Nacchio, 58, who had been charged with 42 counts of insider
trading, was convicted last year on 19 counts. He was sentenced
to six years in prison, though he was allowed to remain free
pending his appeal. He also was ordered to pay a $19 million
fine and forfeit $52 million he made by selling stock.
Nacchio's attorneys asked the appeals court last year to acquit
him, saying the government didn't prove its case.
But the 10th Circuit judges said the evidence was enough for a
jury to convict and that the lone error merited a new trial.
"This is a setback, not a defeat," U.S. Attorney Troy Eid said.
"The good news is the Circuit Court said our trial team
presented sufficient evidence to convict Mr. Nacchio of
"A divided court ruled that a lone expert witness for the
defendant was improperly excluded. We're considering all our
legal options in consultation with the Department of Justice."
Prosecutors have several choices: They may ask the three-judge
panel to reconsider its ruling, ask the full panel of the 10th
Circuit to hear an appeal or begin work on retrying the case.
Less likely scenarios would be an appeal to the U.S. Supreme
Court, dropping the charges or reaching a plea deal with Nacchio.
The government could take weeks to decide its next step. Any
appeal could take several more months, and it's unlikely a new
trial would occur within the next year.
Maureen Mahoney, Nacchio's appellate attorney, said if the case
is retried, she expects an acquittal.
"The additional evidence will establish beyond any doubt that
Mr. Nacchio did not commit a crime," she said.
During a monthlong trial last year, prosecutors argued that
Nacchio knew when he sold stock between January and May 2001
that Qwest was relying too much on one-time sales of space on
its fiber-optic network.
Former executives testified they repeatedly warned their boss
that the revenue targets the company was giving Wall Street were
too aggressive and could not be met.
Nacchio's defense countered that the execs were referring not to
public targets but to higher internal goals. His attorneys
portrayed Nacchio as a hard-driving leader who believed Qwest
could meet them.
In his appeal, Nacchio's attorneys said Fischel's excluded
testimony went to the heart of their case.
Nottingham ruled the defense did not disclose
enough information to prosecutors about the methodology of
Fischel's argument. He allowed Fischel to give a summary of
Nacchio's stock sales, but no economic analysis.
Two 10th Circuit judges -- Paul Kelly and Michael McConnell --
said Nottingham erred when he excluded Fischel. Judge Jerome
Holmes dissented, saying Nacchio's attorneys had the burden of
requesting a hearing on the exclusion but didn't do so.
Defense attorneys also argued that Nacchio was not allowed to
present his "classified information defense."
Nacchio claimed that Qwest was in line to receive large,
top-secret government contracts. He suggested the deals were
pulled after Nacchio refused to go along with a government
Nottingham ruled the defense was not relevant,
preventing Nacchio's attorneys from presenting it. After the
trial, lead prosecutor Cliff Stricklin told the Rocky Mountain
News the defense was "a lie."
All three 10th Circuit judges ruled
was right to exclude it.
If the case is retried, the judges granted Nacchio's request
that a different judge should hear it.
While the judges wrote that they don't believe
had a personal bias against Nacchio, they said: "After reading
the trial transcript, we have concluded that it would be
unreasonably difficult to expect this judge to retry the case
with a fresh mind."
John Holcomb, a professor at the
predicted the verdict at a new trial will be the same.
"It may be a wash for the jury, or Nacchio will appear even
guiltier. This may simply delay the day of reckoning for Nacchio."
burnetts@RockyMountainNews.com or 303-954-5343. Staff writer
Jeff Smith contributed to this report.
Former CEO Joe Nacchio made 19 illegal trades of Qwest stock
in April and May 2001, based on information not disclosed to
investors. Appellate judges overturned his conviction, but those
* The charges carry a maximum penalty of 10 years in
prison and a fine of up to $1 million for each trade.
Prosecutors will seek forfeiture of $52 million in stock
* Nacchio was acquitted on 23 counts of insider trading
between Jan. 2, 2001, and April 2001. (Those charges can't be
resurrected in a second trial).
* Prosecutors allege that Nacchio accelerated his stock
sales in 2001 at a time when he knew the company's revenue
targets were "overly aggressive." Qwest allegedly scrambled to
fill revenue gaps by entering into one-time sales and swaps of
* Nacchio's defense claims he sold stock to diversify his
holdings. Some of the stock sales also were pre-arranged.
PAUL J. KELLY
Nominated by President George H.W. Bush in 1991. Graduate of
Fordham University School of Law and former Republican state
representative from New Mexico. He was on the three-judge panel
that upheld the conviction and death sentence of Oklahoma City bomber Timothy McVeigh.
* Ruled Nacchio case should be sent back for a new trial.
MICHAEL W. MCCONNELL
Nominated by President George W. Bush in 2001. Graduate of
University of Chicago Law School, the alma mater of Nacchio
appellate attorney Maureen Mahoney and U.S. Attorney for
Colorado Troy Eid. Former assistant to the solicitor general. In
2005, he was rumored to be on the short list for a seat on the
U.S. Supreme Court.
* Ruled Nacchio case should be sent back for a new trial;
wrote majority's 60-page opinion.
JEROME A. HOLMES
Nominated by President Bush in 2006. Is the newest judge to join
the 10th Circuit Court of Appeals and its first black judge.
Graduate of Georgetown University Law
Center. Earned a master's
of public administration from Harvard. He was part of the team
that prosecuted McVeigh and Terry Nichols.
* In a 14-page dissent, affirmed Nacchio's conviction and
said he shouldn't receive a new trial.
A three-judge panel ruled 2-1 that Joe Nacchio should get a
new trial. Some highlights of the rulings:
* A defense expert, professor Daniel Fischel, was improperly
excluded from testifying that Nacchio's inside information
didn't affect Qwest's stock price. Two judges said it was an
error that justified a reversal of the conviction and retrial.
One judge disagreed, saying he would uphold the conviction.
* All three judges agreed that Nacchio's "classified
information" defense - that he had top-secret information Qwest
was going to land lucrative government contracts - was not a
valid basis for appeal.
* The government's evidence was "sufficient for the government
to try him again without violating the Double Jeopardy Clause,"
the judges said.
* A new trial should be heard by a different judge, because the
panel concluded "it would be unreasonably difficult to expect
(U.S. District Judge Edward Nottingham) to retry the case with a
Government prosecutors have several options, and it could be
weeks before they decide what to do. The options are:
* Ask the three-judge panel to reconsider its decision
* Appeal to the full 10th Circuit
* Retry the case
* Try to negotiate a plea deal with Nacchio
* Drop the charges or appeal to the U.S. Supreme Court
Meanwhile, Nacchio remains free on a $2 million bond. His
attorney declined to comment on his whereabouts, although bets
are he's at his 14,000-square-foot Mediterranean-style estate
near Palm Beach,
* Late 1996: Joe Nacchio, an AT&T executive passed up for
the top job, is hired to head Qwest Communications by founder
Phil Anschutz. * June 1997: Nacchio takes Qwest public.
The stock price jumps from $22 to $28 the first day of trading.
* July 1999: Qwest, which has built a nationwide
fiber-optic network, announces a $48 billion deal to merge with
U S West.
* March 2000: Qwest stock, which has split twice, hits a
peak price of $66. A month earlier, Nacchio declares Qwest to be
the "new Internet communications company of the net decade."
* June 2000: Qwest finalizes its merger with U S West.
The company has a market value of more than $80 billion, 71,000
employees and $18 billion in annual revenue. Nacchio says the
company expects growth of 15 percent to 17 percent a year.
* December 2000: Stock is down to $32 a share, when
Nacchio insists Qwest will continue to meet or beat projections.
Nacchio sells $93.4 million worth of stock in 2000.
* January-May 2001: Nacchio sells $100.8 million of
stock. Qwest makes its projections, but in part by booking
revenue upfront from sales and swaps of telecommunications
* June 2001: Morgan Stanley analysts begin to question
some of Qwest's financial maneuvers. Nacchio calls the report
* September 2001: Qwest lowers revenue projections and
announces plans to cut 5,000 jobs. The announcement comes a day
before the Sept. 11 terrorist attacks.
* March 2002: Qwest announces it is under investigation
by the Securities and Exchange Commission for its fiber-optic
capacity sales, equipment sales and Dex directory publishing
* June 2002: Nacchio is ousted. During his 51/2-year
tenure, he made more than $300 million in option profits and
* July 2002: Qwest is under criminal investigation.
* October 2002: Nacchio testifies in front of a
congressional committee investigating fiber-optic capacity
swaps. He said the capacity swaps were done for legitimate
business reasons. Congressional investigators conclude that
Qwest engaged in some sham transactions to boost revenue.
* December 2005: Nacchio is indicted on 42 counts of
* May 2007: Nacchio is convicted on 19 counts of insider
trading in connection with $52 million of stock sales in April
and May 2001, after a five-week trial.
* July 2007: Nacchio is sentenced to six years in prison,
fined $19 million and ordered to forfeit $52 million. He has
remained free pending appeal.
* December 2007: Nacchio's case goes to a three-judge
panel of the 10th Circuit Court of Appeals.
* March 2008: The appellate panel orders a new trial,
saying an expert witness for the defense shouldn't have been
excluded from testifying.