Former Qwest CEO faces prison; Supreme Court his last chance
By Sara Burnett and Jeff Smith
Rocky Mountain News
Thursday, February 26, 2009
Former Qwest Chief Executive Joe Nacchio has one final chance to
avoid spending years in a federal prison: the U.S. Supreme
Although the nation's high court has agreed to hear only about 1
percent of cases filed there in recent years, Nacchio has a
couple of things going for him: a narrowly divided
appellate court decision and an attorney with a stellar record
of getting cases heard -- and winning.
The final stage was set Wednesday, when the 10th Circuit Court
of Appeals reinstated Nacchio's insider trading conviction.
In a 5-4 decision, the appellate court found that U.S. District
Judge Edward Nottingham acted properly when he excluded a key
defense expert. The court also revoked an earlier ruling
by a three-judge panel that Nacchio may remain free on bail
pending his appeal and lifted a stay on his prison sentence.
The court sent the case back to the panel to reconsider the
six-year prison sentence and the order for Nacchio to forfeit
$52 million of stock proceeds.
But unless the Supreme Court grants a rare stay of the order of
imprisonment pending a final outcome, Nacchio must report to
prison within weeks.
Former U.S. Attorney for Colorado Troy Eid, who led the office
during the prosecution, said he was "elated."
"This shows there really can be equal justice regardless of
someone's position in life," he said.
Nacchio's lawyer Maureen Mahoney said she was "profoundly
disappointed" by the court's decision, and is optimistic the
U.S. Supreme Court will review the case.
"Not only was the court intensely divided, with four of the nine
judges concluding that Mr. Nacchio was denied a fair trial, but
the majority's decision is in conflict with the decision of
other courts of appeal throughout the country," Mahoney said in
Mahoney, head of Latham & Watkins' appellate practice, has won
17 of the 19 cases she's argued before the high court. She
argued more cases before the Supreme Court than any other
private lawyer during the 2006-2007 term.
A jury convicted Nacchio in 2007 on 19 counts of insider
trading. He was acquitted on 23 other counts.
Nottingham later sentenced him to six years in
prison and ordered that he forfeit $52 million of stock proceeds
from sales between March and May 2001. Nacchio also was
fined $19 million. The money has been kept in an escrow
account pending appeal.
Federal prosecutors alleged Nacchio sold the stock at a time
when he knew Denver-based Qwest's earnings targets were not
realistic. The CEO was required by law to share that
information with other investors but did not, the government
Nacchio's lawyers wanted the excluded witness, Northwestern
University professor and author Daniel Fischel, to testify that
Nacchio's trading pattern was not suspicious and that the inside
information he had, once disclosed, didn't cause a decline in
Nottingham barred Fischel's testimony, saying
Nacchio's attorneys did not provide the methodology for
Fischel's opinions, despite opportunities to do so.
Last year, a three-judge panel of the 10th U.S. Circuit Court of
Appeals overturned the conviction, saying
Nottingham's decision was improper. It ordered
a new trial, before a different judge.
The government appealed that decision to the full 10th Circuit,
which granted the request and held oral arguments last year.
In Wednesday's ruling, the majority of the full court found the
exclusion of the testimony was within
Judge Jerome Holmes, writing for the five judges, also said
Nacchio had ample notice that he needed to provide the
methodology in advance of Fischel's taking the stand.
"Mr. Nacchio is attempting to recast an unremarkable district
court evidentiary ruling as an invidious act of judicial
hubris," Holmes wrote. "But it will not work."
In a dissenting opinion, the minority judges said they had
"nagging doubts" about Nottingham's
fairness toward Nacchio, and that it was the judge, not defense
attorneys, who made a mistake.
"If the decision here was not an abuse of discretion, we wonder
what one would look like," they wrote.
Nelson Phelps, executive director of the Association of U S West
Retirees, immediately received e-mails and calls from retirees
pleased that Nacchio's conviction had been reinstated.
"So many of them were hurt; they lost so much" when Qwest
stock plummeted, Phelps said.
"Now, the question so many have is 'When is he going to jail?' "
Phelps said. "Will the Supreme Court even hear (the case)?
In the end, he's only delaying what I think is the obvious."
In addition, Nacchio faces civil lawsuits, including one by the
Securities and Exchange Commission. Wednesday's ruling, if
it stands, is likely to strengthen aspects of the civil cases,
which require a lower burden of proof.
Qwest, which also still faces some lingering civil lawsuits
stemming from Nacchio's tenure as CEO, declined comment on the
appellate court's decision.
telco has spent tens of millions of dollars defending Nacchio
against civil and criminal allegations.
Qwest is no longer on the hook to pay for Nacchio's criminal
legal fees, thanks to a settlement agreement with Nacchio's
defense team in 2007. Qwest reserved the right to try to
recover certain legal expenses once the Nacchio appeals process
runs its course.
It was unclear Wednesday when the three-judge panel will
reconsider Nacchio's sentence in the criminal case.
Nacchio's attorneys argued at his 2007 sentencing that he should
be required to forfeit as little as $1.8 million, the amount the
defense determined was the financial gain Nacchio enjoyed
because of the nonpublic, or "insider," information.
Another scenario they presented would have seen Nacchio
forfeiting $42 million, his stock-sale profits. They said
his prison sentence should be a maximum of 41 months, if any
prison term is ordered, and the fine no more than $6 million.
* The Bureau of Prisons will designate a prison facility
for Nacchio, a process that could take several weeks.
* Nacchio must report to the prison within 15 days of the
designation being made.
* Defense attorneys may ask the U.S. Supreme Court to stay the order
of imprisonment, allowing him to remain free pending a final
* Nacchio's attorneys have 90 calendar days from Wednesday
to file a petition asking the Supreme Court to hear the case.
If the government chooses to respond, it would have 30 days
after the petition is filed.
* The court would likely decide during its next term,
which starts in October, whether to hear the case. There
is no deadline for the court to make its decision.
* A three-judge panel of the 10th Circuit Court of Appeals must
reconsider his sentence. That schedule has not been set.