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Heard on the Street: Behave
EXECS' HANDLING OF TRADES
By Greg Griffin, Staff Writer 
Denver Post
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 years.

"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 Inc.

"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 fool."

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 executives.

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 a jury.

"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 ggriffin@denverpost.com.

http://www.denverpost.com/business/ci_5728221