Appeals court orders new, shorter sentence for ex-Qwest CEO Joe
By P. Solomon Banda
Mpls Star Tribune
Saturday, August 1, 2009
DENVER - An
appeals court has ordered a new, shorter sentence for ex-Qwest
CEO Joe Nacchio, saying his 6-year term for insider trading was
The 10th U.S. Circuit Court of Appeals ruled Friday that the
trial judge overstated the amount of Nacchio's alleged financial
Nacchio was convicted in 2007 of 19 counts of insider trading
and acquitted on 23 counts. Prosecutors alleged he sold
$52 million in Qwest Communications International stock based on
nonpublic information that the Denver-based telecommunications
company was at risk.
A three-judge panel at the 10th Circuit Court of Appeals in Denver on Friday agreed with Nacchio's lawyers
that the $52 million figure was too high. Instead, the
figure used should have been Nacchio's net profit resulting from
illegal insider trading.
The appeals court did not say exactly what Nacchio's sentence or
fine should be, sending those determinations back to a lower
Nacchio attorney Herbert J. Stern said they were gratified with
the ruling, while Washington-based Justice Department
spokeswoman Laura Sweeney said they were reviewing it.
A securities lawyer in
watching the case called Friday's ruling a setback for
government prosecutors seeking generous determinations of the
harm from fraud.
"The calculation of sentence dollar amounts is hotly contested,"
said securities attorney Tom Ajamie.
"What is the proper dollar amount to look at? The
government will want to argue damage to all shareholders, damage
to the company, which can be in the hundreds of millions.
The defense lawyers will always argue, no, you have to look at
the personal gain."
Prosecutors said Nacchio gained $44 million, while the court for
sentencing purposes took the prosecutors' figure and subtracted
$16 million for taxes. His six-year sentence was based on
an alleged profit of $28 million.
Nacchio's attorney's argue that the former CEO is being punished
for the price increase of Qwest stock from 1997, and his actual
profit would have been $1.8 million, capping his prison sentence
at 4 years, three months.
The court wrote that it disagreed with the district court's
analysis and said Nacchio's gain should be calculated "in a
manner that is more narrowly focused on producing a figure that
reflects, in at least approximate terms, the proceeds related to
his criminally culpable conduct."
Nacchio was ordered to forfeit $52 million, but the court said
that amount should be adjusted to reflect brokerage, commission
fees and and other direct costs of trading. The appellate
court ruled that the lower court misapplied the law in ordering
Nacchio to forfeit the gross proceeds of the trades.
Using the higher figure to calculate a sentence for Nacchio, the
court wrote, "ignored the myriad of factors unrelated to his
criminal fraud" that could've affected the value of the
Nacchio has appealed his conviction to the Supreme Court but was
ordered to begin serving his prison term in April. He is
at the minimum-security Federal Correctional Institution
Schuylkill satellite camp in Minersville, Pa.
Associated Press Writer Kristen Wyatt contributed to this
court orders new, shorter sentence for ex-Qwest CEO Joe Nacchio