on the Street: Behave
EXECS' HANDLING OF TRADES
By Greg Griffin, Staff Writer
Monday, April 23, 2007
Prosecutors said the insider-trading conviction of former Qwest
chief executive Joe Nacchio on Thursday sent a strong message of
caution to Wall Street.
That message was heard in another place too: the corner office.
Chief executives and other corporate insiders who buy and sell
their companies' shares are taking notice of the 19 guilty
verdicts against Nacchio, which could put him behind bars for 10
"When you're an executive ... one message it does send is that
you have to be extraordinarily careful in how you divest of your
stock," said Tim Marquez, chief executive of Denver-based Venoco
"Every share you sell, you're going to come under intense
scrutiny. You better make sure that you're making your board
and everyone else fully aware," he said.
"There have been so many cases over the last few years," he
said. "In years past, I think people did take advantage of some
insider knowledge. But, boy, anybody who would do that now is a
Nacchio's is the latest in a series of high-profile corporate
crime cases that have prompted tougher financial regulation of
public companies and heightened awareness of penalties for
The Nacchio case shines the spotlight more than ever on insider
trading, or stock trading by executives who are privy to
information that's not available to common investors.
An immediate effect of the verdict is that the government will
be more confident in pursuing criminal insider-trading cases,
said Larry Ribstein, a law professor at the University of
Illinois. Nacchio's insider-trading case was more complex than
most, but the government was able to present it successfully to
"They were able to boil down a complicated accounting case to
insider trading, which people understand," Ribstein said.
The verdict also is likely to convince more executives to enter
into pre-arranged stock-trading plans. They allow company
insiders to make programmed trades into the future. Executives
must sign a declaration when they execute the plan confirming
they don't possess inside information at that time.
Nacchio entered such a plan in early 2001 but he quickly
abandoned it because of "current uncertainty in the markets," he
said at the time. Prosecutors noted during the trial that the
program would have solved all of Nacchio's problems.
"One hopes that, given that executives are facing criminal
charges, others will see they're going to need to rely on these
plans even more," Ribstein said.
The Securities and Exchange Commission created the trading plans
in 2000 to allow buying and selling of shares by insiders
outside of allowable trading windows.
But many executives still don't use them, said Denver attorney
Scott Berdan of Kamlet Shepherd & Reichert. He estimates about
40 percent of his clients enter a prearranged trading plan. He
expects the Nacchio ruling to push that number up.
Executives sometimes find the plans too inflexible and difficult
to change once executed.
"What always bites executives from an insider-trading
perspective is when they chafe under those restrictions and they
want to time the market. That's a very risky thing to do when
you're a corporate insider," said Denver attorney Bill Leone of
Faegre & Benson.
Leone launched and built most of the case against Nacchio before
stepping down as U.S. attorney last year.
"As a defense lawyer advising executives," he said, "to me, the
importance of making a plan early and following it to the letter
has never been more important."
Staff writer Greg Griffin can be reached at 303-954-1241 or