The Association of U S West Retirees



Long wait for Nacchio verdict?
U.S. attorney calls ruling a 'setback, not a defeat,' ponders next move
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 country.

"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 insider-trading.

"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 phone-spying program.

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 Nottingham 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 Nottingham 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 University of Denver, 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." or 303-954-5343. Staff writer Jeff Smith contributed to this report.

Pending charges

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 charges stand.

* 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 proceeds.

* 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 communications capacity.

* Nacchio's defense claims he sold stock to diversify his holdings. Some of the stock sales also were pre-arranged.

The Appeals Court judges


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.


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.


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.

The decision

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 fresh mind."

What's next?

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, Fla.


* 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 capacity.

* June 2001: Morgan Stanley analysts begin to question some of Qwest's financial maneuvers. Nacchio calls the report "hogwash."

* 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 accounting.

* June 2002: Nacchio is ousted. During his 51/2-year tenure, he made more than $300 million in option profits and compensation.

* 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 insider trading.

* 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.