Joe Nacchio's possible prison terms
By Andy Vuong
Monday, August 3, 2009
On Friday, a federal appeals panel ruled that former Qwest CEO
Joe Nacchio’s six-year prison term for insider trading was too
long and sent the case back to the district court for
The Justice Department can appeal the decision to the entire
10th Circuit and the Supreme Court. Should the government
not exercise those options, or if they lose on appeal, Nacchio’s
sentence would be left up to U.S. District Judge Marcia Krieger.
Nacchio’s sentencing would then start all over, which I’m told
could lead to sentencing hearings and experts getting called in
In criminal securities cases such as Nacchio’s, federal
guidelines call for the sentence to be based on the amount of
the victims’ losses or defendant’s gain from the crime.
For insider trading cases, since there are no direct victims,
the severity of the crime is based on the total gain resulting
from the offense, or in other words, how much money the
Here’s a breakdown of Nacchio’s potential sentences. The
starting point is the low end of what Nacchio’s attorneys had
asked for. Sentencing guidelines are based on a point
system. The base level for insider trading is 8 points and
add 2 for abuse of position of trust. So the starting
point is 10.
If the gain is more than $1.5 million, add 12 points, for a
total of 22 points, and a sentence ranging from 41 months to 51
months. (Nacchio pinned the gain at $1.8 million.)
More than $2.5 million, add 13 points, for a range of 46 months
to 57 months.
More than $5 million, add 14 points, for a range of 51 months to
More than $10 million, add 15 points, for a range of 57 months
to 71 months.
More than $20 million, add 16 points, for a range of 63 months
to 78 months.
In sentencing Nacchio to 72 months, Judge Edward Nottingham, who
has since resigned, determined that the gain was $28 million —
what Nacchio pocketed after fees and taxes. Nacchio was
convicted for 19 illegal insider trades involving Qwest stock.
The gross on those trades was $52 million.
Nacchio’s attorney argues that the amount of gain should be
based on what effect the inside information he held had on
Qwest’s stock after it was publicly released. His attorney
contends that Nacchio gained $1.8 million from having the inside
information, while the other $26 million or so that he made from
the sale of Qwest stock was legitimate.
“The vast majority of the amount calculated by the court
reflects years of legitimate price appreciation in Qwest stock
since the options were granted, and should not have played a
role in determining Nacchio’s relative culpability,” Nacchio
attorney Maureen Mahoney wrote in her appeals brief back in
As a side, Nacchio’s sentence will be based on 2000 guidelines
since the crimes took place in early 2001. The 2008
guidelines are harsher, and based on the amount of gain from
$1.8 million to $28 million, Nacchio would have faced a sentence
ranging from 5 years, 3 months to as high as 12 years, 7 months
under the new guidelines.