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Prison time likely for Nacchio
Guidelines urge 70 to 87 months, but it's up to judge
By Sara Burnett
Rocky Mountain News
Saturday, July 21, 2007


Joe Nacchio is likely to get a ticket to federal prison when he's sentenced Friday for insider trading.  The question is, how long will the former Qwest CEO be ordered to serve, and how much will his conviction cost him?

Prosecutors say Nacchio's crime is punishable by a prison term between 70 and 87 months, and they're asking U.S. District Judge Edward Nottingham for the maximum term -- seven years, three months.  They also want Nacchio to forfeit the $52 million they say he made on the illegal sales and to pay a $19 million fine.

Defense attorneys say Nacchio should have to forfeit only $1.8 million.  They also are expected to argue for a shorter prison term, or no prison at all.

The final decision will rest with Nottingham, who presided over the five-week trial earlier this year.

Nacchio was convicted in April of 19 counts of insider trading.  Jurors found he illegally sold stock 19 times between April and May 2001, when he had "insider" information that Qwest wouldn't be able to make aggressive revenue projections --information he should have shared with investors.

While there's no way to know how Nottingham will rule, several local attorneys who have followed the case predicted Nacchio will be sentenced to at least five years.  Their opinions differed on the forfeiture and fine.

Whatever prison sentence he receives, federal rules dictate he must serve 85 percent of the time.

"Judge Nottingham is very evenhanded," said Paul Wood, vice chairman of the litigation group at Moye White.  "He ran the trial in a fair but strict way.  I think he will do the same at sentencing."

Federal prosecutors use guidelines created by the U.S. Sentencing Commission to recommend a defendant's sentence -- in this case, between 70 and 87 months.

The guidelines are strictly advisory, and judges may deviate from them.  But that doesn't happen very often, said Kevin O'Brien, a CPA and attorney who is also a professor at the University of Denver.

How it works

Last year in the 10th Judicial Circuit, which includes Colorado, federal judges issued sentences that were within the guidelines in 62 percent of cases, according to the U.S. Sentencing Commission.  In another 25 percent of cases, they went below the guidelines, but with the recommendation or agreement from the government.

They went below the guidelines -- and against the wishes of prosecutors -- in just 11 percent of cases.

The guidelines use a kind of point system, in which offenses are "scored" on a 43-point scale, then considered along with a defendant's criminal history.

Under the guidelines, each crime is given a "base" number, with more serious crimes having higher numbers.  First-degree murder, for example, has a base of 43, while kidnapping is 24.

Nacchio's crime of insider trading starts with a base level of eight.

Points are then added depending on the severity of the crime.  In the case of insider trading, points are added based on the amount of money the defendant gained from the offense.

This is one of the major sticking points between Nacchio's attorneys and federal prosecutors, and a question that will be key to how Nottingham rules.

The U.S. attorney's office argues that Nacchio's take was $52 million before per-share option costs and $44.6 million after costs.  Either way, it means an increase of 17 points on the sentencing scale.

Those points, along with two points prosecutors say should be added because Nacchio was in a position of authority, place the former CEO's crime in the sentencing range of 70 to 87 months.

Nacchio's attorneys, meanwhile, say his actual gain was closer to $1.8 million.  That's the amount, after taxes and costs, that a defense-hired consultant has determined was "gain attributable to the material inside information" that Nacchio possessed, according to a court filing.

A gain of $1.8 million would add 12 points to Nacchio's base offense level.  Nacchio's lawyers have not publicly stated what they believe his sentence should be, but depending on whether they add points for Nacchio being in a position of authority, it could range from 30 to 51 months.

They also could ask for less.

Local attorneys said they don't believe Nottingham will buy the defense's argument that Nacchio's gain is only $1.8 million.  Several called it a novel legal argument with little to no legal precedent.

"I just don't see Judge Nottingham going out of his way to credit a novel theory to give Nacchio a break," attorney Jeralyn Merritt said.

Other factors

Nacchio's attorneys also have argued in court filings that any sentence should be reduced because of his "prior good works" and because a lengthy imprisonment may lead to worsening health problems and possibly an early death of unnamed "immediate family members."

The document does not name the family members.  But prosecutors identified one as Nacchio's oldest son, who is in his 20s.  Nacchio's attorneys said at trial that the young man attempted suicide while Nacchio was CEO of Qwest.

The other family member could be Nacchio's mother, who is in her late 80s.  In a court filing last year, Nacchio's attorneys said caring for his mother and father (who is now deceased) was one of the reasons the Nacchios never moved to Denver from their home in New Jersey.

Wood said he doesn't believe Nottingham will be "terribly sympathetic" to the family argument.

O'Brien noted that the sentencing guidelines say judges should decrease sentences for family reasons only if the defendant is the only person who can care for the family member.  In this case, prosecutors have argued Nacchio's wife could look after them.

But attorney Scott Robinson said he thinks the need to care for family is a valid concern.  So is Nacchio's argument that he should receive a lighter sentence because of "prior good works," Robinson said.

That includes charitable giving to places such as his children's school.

Prosecutors, however, have said those charitable works were a routine part of Nacchio's role as a high-profile executive.

"It's impossible to predict with any accuracy (what Nottingham will do)," Robinson said.  "All in all, it makes me glad for the umpteenth time that I'm not a judge."

burnetts@RockyMountainNews.com or 303-954-5343

http://www.rockymountainnews.com/drmn/other_business/article/0,2777,DRMN_23916_5638859,00.html