Judges narrow case to two points
The appeal's outcome could boil down to the significance of
Nacchio's inside information and a witness' exclusion.
By Andy Vuong
Wednesday, December 19, 2007
A three-judge panel Tuesday focused on two points during the
oral arguments of former Qwest chief executive Joe Nacchio's
criminal-insider-trading appeal: the significance of the
inside information he had and the exclusion of testimony from a
Nacchio did not attend the hour-long hearing, which went 30
minutes over schedule and featured a standing-room crowd that
included top trial prosecutor Cliff Stricklin, Colorado U.S.
Attorney Troy Eid and Nacchio's lead trial attorney, Herb Stern.
The judges peppered both sides with questions on the importance,
or materiality, of warnings Nacchio received from his
lieutenants about Qwest's deteriorating financial condition.
But they largely hammered the government about the trial judge's
decision not to allow a defense witness to testify about the
materiality of those warnings to Qwest's stock price.
Nacchio kept the warnings private while accelerating his sale of
company stock in early 2001, leading to his conviction on 19
counts of illegal insider trading in April.
Defense attorney Maureen Mahoney opened the hearing by arguing
that Judge Edward Nottingham didn't follow legal standards in
instructing jurors about the importance of the information
Nacchio had and what he publicly disclosed.
"There were no instructions that would have guided them," she
She said the warnings Nacchio received were not material because
they amounted to a $900 million shortfall out of total annual
revenue of roughly $21 billion.
Prosecutor Stephan Oestreicher argued otherwise, saying Nacchio
once told employees that a $50 million shortfall would hammer
Presiding Judge Paul Kelly asked Oestreicher whether it would be
a criminal act if Nacchio didn't disclose a $50 million
Oestreicher responded by citing Nacchio's "golden rule" of never
saying anything that would hurt Qwest's stock.
The panel appeared troubled by Nottingham's
decision not to allow expert testimony from law professor Daniel
Fischel, a Nacchio witness, without holding a hearing on the
Oestreicher was asked to justify Nottingham's
decision to keep Fischel from testifying during the month-long
trial about the materiality of the information that Nacchio
Judges Michael McConnell and Kelly suggested that
could have heard Fischel's testimony outside the presence of the
jury to determine whether it was important enough to be
"They were just super-critical of the trial court for not
determining what the nature of the proposed expert testimony was
before not allowing it," said former federal prosecutor Rick
Kornfeld, who attended the hearing, held at the 10th Circuit
Court of Appeals in
Oestreicher noted that the defense did not ask for a hearing
before Nottingham ruled.
Kornfeld said the judges' questioning should not be given too
"While the questioning is an important part of the appellate
process, it's a small part," he said.
The crux of any appeal is in the briefs filed by both parties.
Kelly and McConnell indicated that they might be interested in
providing guidance to executives on insider stock sales with
The judges did not indicate when they would render a decision,
but the case is set for expedited review.
The panel can acquit Nacchio of the charges, order a new trial
or affirm the conviction. If the judges uphold the
conviction, they will also rule on Mahoney's request to reduce
Nacchio, who ran Qwest from 1997 until he was ousted in 2002
amid an accounting scandal and a plunging stock price, was
sentenced to six years in prison and ordered to forfeit $52
million in ill-gotten gains and pay $19 million in fines.
He is free on $2 million bail.
If the conviction is upheld, Nacchio can request a rehearing by
the same panel or by the entire 10th Circuit Court. He
could also appeal to the U.S. Supreme Court.
University of Denver law professor Jay Brown, who
attended the hearing, noted that Kelly was "quite deferential to
Mahoney was at the podium for about 35 minutes, and Oestreicher
had about 25 minutes.
Also in the crowded courtroom was Mimi Hull, president of the
Association of U S West Retirees. She said she would be
disappointed if the judges send the case back to the lower court
or dismiss it entirely.
"But rest assured we will stay with it until there is a
definitive conclusion," she said.
Staff writer Tom McGhee contributed to this report.
Andy Vuong: 303-954-1209 or
Key points - The three-judge appellate
panel focused on two primary arguments raised by former Qwest
chief executive Joe Nacchio's attorney:
What was said: Two judges on the panel, Paul Kelly and
Michael McConnell, questioned whether the inside information
Nacchio had was so important, or "material," that he committed a
crime by selling stock on the basis of that information.
They questioned whether information that resulted in a $900
million shortfall in revenue, out of annual revenue of roughly
$21 billion, could be material. The government argued that
even a $50 million shortfall is material in Nacchio's case.
Possible outcome: The panel could rule that (1) the information
Nacchio had was not material, which would acquit Nacchio on all
charges; (2) Judge Edward Nottingham should have instructed the
jury on "materiality," which would lead to a new trial; (3) the
information was material and the jury instructions were
sufficient, which would affirm the verdict.
Exclusion of testimony
What was said: The panel appeared concerned by
Nottingham's decision not to hold a hearing outside
the presence of the jury to determine whether expert testimony
was relevant to the case before ruling that law professor Daniel
Fischel, a Nacchio witness, could not testify about materiality.
Prosecutors argued that the defense never asked for a hearing
before Nottingham ruled.
Possible outcome: The panel could determine
erred by not holding such a hearing, which would result in a
reversal of the conviction and a new trial. The panel could also
determine that Nottingham ruled correctly, upholding the conviction.