The Association of U S West Retirees



Experts expect Nacchio guilty verdict to stand
Judges more hostile to ex-Qwest CEO's attorney
Rocky Mountain News

By Sara Burnett and Jeff Smith
Friday, September 26, 2008

Legal experts walked out of Joe Nacchio's appellate court hearing Thursday with a nearly unanimous prediction:  an initial guilty verdict for the former Qwest CEO's insider trading trial will be reinstated.

There's no way to know how the court will rule, and some cautioned against guessing.  But the nine judges who heard the case were clearly more hostile toward Nacchio's attorney.

Nacchio was convicted last year on 19 counts of insider trading for selling $52 million in Qwest stock in 2001.

A three-judge panel of the 10th Circuit Court of Appeals earlier this year reversed the conviction, sending the case back for a new trial.  The government then asked the full court to consider the case.

It agreed, holding oral arguments in Denver on Thursday.

Standing before nine of the court's 12 full-time judges, Nacchio lawyer Maureen Mahoney could barely finish a sentence without a judge cutting in with a question.

Two judges said they were "perplexed" by her argument.

"I don't think it's a good day for Joe Nacchio," said Rick Kornfeld, a Denver attorney and former federal prosecutor who attended the hearing.

John Holcomb, professor of business ethics and legal studies at the University of Denver's Daniels School of Business, said Mahoney appeared to be "groping" for answers.

"There were judges there, especially at the end, who really had Mahoney bailing water," he said.

Nacchio didn't attend, and neither his lawyers nor attorneys for the government commented afterward.  But one of Nacchio's former attorneys said the proceeding did not go well.

Nacchio was indicted on 42 counts of insider trading in 2005.  Prosecutors said Nacchio knew when he sold about $100 million in stock that Qwest was in financial trouble, but didn't disclose that information to investors.

In April 2007 a federal jury acquitted Nacchio on 23 counts but convicted him on 19 counts.

U.S. District Judge Edward Nottingham later sentenced Nacchio to six years in prison and ordered him to forfeit $52 million and pay $19 million in fines.

A three-judge panel of the 10th Circuit Court of Appeals said Nacchio could remain free on bail pending his appeal.

The same three-judge panel ruled 2-1 that Nacchio should get a new trial because Nottingham improperly excluded testimony from a key defense witness, economist Daniel Fischel.

The full 10th Circuit then granted the government's request to reconsider the ruling.

Mahoney told judges Thursday that Nacchio's lawyers were "surprised" when Nottingham said Fischel could not present expert testimony.

Fischel would have told jurors that the information Nacchio had when he sold stock was not "material," or wouldn't have significantly affected the stock price, and therefore didn't need to be disclosed.  That opinion went to the heart of the defense, Mahoney has said.

Nacchio's team wanted to put Fischel on the stand to establish the reliability of his opinions, Mahoney told the judges.  But when they tried to do so, Nottingham cut them off, saying any argument could have been put in writing.

Prosecutors have argued that Nacchio's lawyers had ample opportunity, and fair warning, that they needed to provide more information about Fischel's findings before he would be allowed to share them with the jury.

They said lawyers could have provided the methodology in writing before or during the trial, or requested a hearing on the issue.

Judge Jerome Holmes, who dissented in the earlier ruling, seemed to agree Thursday, telling Mahoney that "the obligation is upon the person who wants to get that witness in."

But Deputy Solicitor General Edwin Kneedler, arguing for the government, didn't escape the proceeding unscathed.

Judges Michael McConnell and Paul Kelly, who issued the earlier ruling in favor of Nacchio, hit him hardest.

McConnell questioned how Nottingham couldn't consider Fischel -- who has testifed more than 200 times, often for the government -- an expert.

Kelly asked if Kneedler believed it was due process when Nottingham told Nacchio's attorneys they weren't allowed to speak.

Chief Judge Robert Henry also jumped in, asking if Nottingham's exclusion of the witness wasn't "over the top."

"Why is 'total exclusion' what we should do here?" Henry said.

The court has several options.  It may reverse the three-judge panel's decision and uphold the conviction, send the case back for a new trial, or send it back for a new hearing on whether Fischel's testimony should be permitted.

The judges have not indicated when they might rule, and may do so at any time.  After the hearing before the three-judge panel, it took the judges three months to issue an opinion.

Either side may also ask the U.S. Supreme Court to consider any unfavorable ruling.

Exclusion of defense witness testimony

The arguments

* Joe Nacchio's attorneys said they were surprised when U.S. District Judge Edward Nottingham excluded testimony from a key defense witness.

When the lawyers tried to ask for a hearing, Nottingham told them they couldn't speak.

"So (Nacchio) should go to prison for six years because the court says he can't speak?" lawyer Maureen Mahoney said.

* Prosecutors said that Nacchio's attorneys were on notice that they needed to provide more information about the witness and his testimony.

Lawyers had the burden of providing it or asking for a hearing.

"If (Nacchio's) counsel really wanted to be heard . . . there are any number of things counsel . . . could have done," prosecutor Edwin Kneedler said.

What's next

The judges have not indicated when they might rule, and they may do so at any time. The court may:

* Reverse the three-judge panel's decision and uphold the conviction;

* Send the case back for a new trial;

* Send the case back for a new hearing on whether the defense witness should be allowed to testify.

Experts' take on the testimony

* John Holcomb, University of Denver professor of business ethics and legal studies:  Predicts a 5-4 or 6-3 vote to reinstate Nacchio's insider-trading conviction.  "(Maureen) Mahoney and the rest of the appellate counsel were stuck with trying to rescue Nacchio from bad lawyering."

* Rick Kornfeld, Denver attorney and former federal prosecutor:  "My prediction is that they're going to reverse the panel.  I don't think it's a good day for Joe Nacchio."

Kornfeld said he was struck by the aggressive questioning, and the fixation by the majority of judges on the fact that the defense failed to explicitly ask for a hearing to qualify its expert witness.  "From my perspective, the (hearing) focused on some of the really picayune, procedural details rather than the larger issue of whether or not Nacchio got a fair trial."

* Marcy Glenn, chair of Holland & Hart's appellate practice group:  "It's very dangerous to predict, so I won't do that."  But from the questioning, she said she sensed that more judges accepted the government's position.  She noted the irony that a case of this importance would end up before the full appellate court on such a narrow procedural issue.  "In the end, the issue boils down to the tension between a district judge's discretion on a procedural issue and a criminal defendant's right to due process."

* Curtis Kennedy, attorney for the Association of U S West Retirees:  "I think the vote is going to be 6-3 upholding the conviction and then Nacchio's attorneys are going to have to spin their wheels hoping the (U.S.) Supreme Court grants a review."

* Jay Brown, University of Denver law professor:  "It seemed like the views of the majority of the judges were unmistakable" in terms of agreeing with the government.

If appellate Judge Michael Murphy is needed for a majority opinion, the issue of the expert witness could be sent back to District Court.  Otherwise a reinstatement of the insider-trading conviction is likely, he said.

Brown said he believes the appellate court is concerned about the burden on trial judges if the onus is on them to hold a hearing on a witness' qualifications.