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Expert shoots down Nacchio's strategy
U.S. attorney says indictments sound after dismissal bid
By Jeff Smith
Rocky Mountain News
Tuesday, February 28, 2006

Former Qwest chief executive Joe Nacchio's attempt to get 42 insider-trading charges against him dismissed before trial is almost sure to be denied, a securities expert said.  Nacchio recently argued the government's indictment, handed down in December, was vague and legally deficient, and should be dismissed.  His attorneys claim the information Nacchio allegedly possessed in 2001 failed to rise to the level of being material enough to require disclosure to investors.

U.S. Attorney for Colorado William Leone responded Friday that the government's indictment is sufficient and that prosecutors aren't required in advance to identify how the information was material or their legal theory.

John Coffee, an expert in securities law and a professor at the Columbia Law School in New York, concurred when asked recently about the case.

"You should understand that in every white-collar case, there is a motion to dismiss the indictment as legally insufficient and it loses in 95 percent of the cases," Coffee wrote by e-mail.  "The issue of whether information -- including information that the company will fall short of its projected earnings -- is material is one for the jury and cannot be dismissed as a matter of law."

Nacchio is accused of dumping more than $100 million of Qwest stock in the first five months of 2001 based on insider information.  Prosecutors charge that Nacchio was warned that Qwest's financial targets were a "huge stretch" and likely not attainable.  Qwest resorted to questionable one-time deals in order to make its numbers, prosecutors say.

Nacchio's attorneys argue that being warned about financial risks is hardly the stuff of material information that must be disclosed.

"The defendant is wrong," Leone countered in Friday's filing.  "Materiality is proved by showing a substantial likelihood that a reasonable investor would have considered the information important in deciding to buy or sell Qwest stock."

Nacchio's attorneys also claim the government's indictment conceded that Qwest's financial reports were accurate at the time.  That's been seen as an attempt to argue the government must prove Qwest's results were deliberately false.

Leone countered that the "government has never conceded, expressly or otherwise, that Qwest's financial reporting during the relevant period was fully accurate and complete."

In fact, Qwest subsequently erased more than $2.5 billion of revenue and profits from its 2000 and 2001 books.

Coffee wrote that the prosecution doesn't have to allege accounting fraud in order to prove insider trading.

Nacchio's legal team also is fighting for all the details it can get underlying the allegations in the eight-page indictment.  It recently asked for "particulars" covering 14 areas and more than 50 subparts.

Leone, who is fighting the request, called it "simply an effort to require the government to designate which witnesses and evidence it might rely on to prove certain aspects of its case."

http://www.rockymountainnews.com/drmn/tech/article/0,2777,DRMN_23910_4501585,00.html