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Nacchio appeal detailed in 58 pages
The brief argues there was insufficient evidence and the Denver trial took place in an atmosphere of "vitriol." 
By Andy Vuong
Denver Post
Wednesday, October 10, 2007

The appellate attorney for Joe Nacchio laid out his case Tuesday, detailing in a 58-page opening brief why the former Qwest chief executive should have his insider-trading conviction overturned or, at the very least, be granted a new trial.

In arguing for an acquittal, defense attorney Maureen Mahoney states there was insufficient evidence to prove Nacchio sold Qwest stock on the basis of material, nonpublic information in early 2001.

Mahoney asserts Nacchio should be granted a new trial because of flawed jury instructions, the wrongful exclusion of a defense expert witness and rulings related to Nacchio's classified information defense.  Mahoney also contends Nacchio's 72-month prison sentence should be reduced to a range of 41 months to 51 months.  

"The indictment, trial, and conviction of Joseph P. Nacchio took place in an atmosphere of prejudgment and vitriol," Mahoney wrote to open the brief, filed late Tuesday with the 10th Circuit Court of Appeals.  "The prosecution yoked an unprecedented theory to plainly insufficient facts, and hoped, in a bitter and vindictive atmosphere, that it would be enough to win a conviction from a Denver jury.  It was."

After a month-long trial in Denver federal court, Nacchio was convicted in April on 19 counts of illegal insider trading connected to his sale of $52 million in Qwest stock.  He was acquitted on 23 other insider-trading charges.  In addition to the six-year prison sentence, he was ordered to forfeit the ill-gotten gains and pay a $19 million fine.

Nacchio remains free on $2 million bail pending his appeal. Oral arguments in the appeal are set for Dec. 18.

Several of Nacchio's former lieutenants testified during trial that they repeatedly warned him beginning in late 2000 that Qwest's financial condition was deteriorating and the company would struggle to hit his lofty targets for 2001.

The prosecution contended Nacchio deliberately hid these warnings from the public and accelerated his stock sales in early 2001 because he knew the company was headed for a fall.

Mahoney said this argument was "unprecedented" for insider-trading cases.

"Insider-trading cases invariably charge executives with trading ahead of merger news or imminent quarterly earnings announcements, or on the basis of some other 'hard' inside information," Mahoney wrote.  "The extraordinary charges here are based on the claim that Nacchio knew, eight months or more in advance, that Qwest might not make its year-end 2001 financial projections."

She said the evidence fell short in that it did not prove three things:

-  That Nacchio traded on the basis of inside information.
-  That the information he had was material.
-  That he intended to violate the law.

Mahoney also said the court erred by not instructing jurors about the materiality of the information Nacchio received from his lieutenants.

"As a consequence, the jury could have convicted Nacchio for failing to disclose internal debates even if it determined that he reasonably believed that Qwest would meet its projections," Mahoney said.

Nacchio has contended he was upbeat about Qwest because he had top-secret information that the company was in line to receive lucrative government contracts.  Much of that defense went unheard during trial, partly because of pretrial rulings made by the court about what information would be admissible.

Mahoney made arguments about those rulings in a separate, sealed 1,041-word filing.  The 58-page brief contained 15,902 words.

During his five-year tenure, Nacchio led Qwest through tremendous growth.  But the company nearly collapsed into bankruptcy in the summer of 2002 amid an accounting scandal and the tech downturn.  Nacchio was ousted in June 2002.  The Denver-based company later restated more than $2 billion in revenue booked under Nacchio's watch.

Joe Nacchio's case for appeal

-  Convicted of 19 counts of selling Qwest stock on the basis of inside information; he contends the case wasn't proved.

-  Prison sentence should be reduced from 72 months to 41 to 51 months;  he was also fined $19 million.

-  Nacchio has contended he had secret information that Qwest was to receive lucrative government contracts;  that information was not allowed during the trial.

Andy Vuong: 303-954-1209 or avuong@denverpost.com

http://www.denverpost.com/business/ci_7132471