Appeal faces tough hurdles
D.C. Justice lawyers take over ex-Qwest CEO's case
By Andy Vuong, Staff Writer
Sunday, July 29, 2007
The uphill battle former Qwest chief executive Joe Nacchio faces
to get his illegal-insider-trading conviction overturned and
avoid a six-year prison term just got tougher.
U.S. attorney for Colorado Troy Eid said his office is handing
the high-profile case over to Justice Department attorneys in
Washington, D.C., because they have "significant prior
experience in insider-trading and fraud cases of this
"There are just a few people who have successfully defended
(insider-trading) appeals in the circuit courts," Eid said
Saturday. "It seemed to be the most prudent action to put
together a team that will be led by the folks who've done these
cases before out of main Justice."
Eid said his
office will continue to be involved with the case in a
supporting role. The move gives the government more firepower
to battle Nacchio's well-regarded appellate specialist, Maureen
"Usually the local office handles the appeal,"
white-collar-crime expert Peter Henning said. "The assistant
U.S. attorneys out in Denver are carrying a full caseload. With
someone out of the appellate section in the criminal division in
D.C., this will be one of their main cases, so they won't have
the distractions of other cases."
U.S. District Judge Edward Nottingham on Friday ordered Nacchio
to serve six years in prison, pay $19 million in fines and
forfeit the $52 million he grossed on the illegal stock sales.
Nacchio could be released for good behavior after serving a
little more than five years. He is expected to report to prison
within 60 days.
With Nacchio behind bars, the legal battle moves from the U.S.
District Court in downtown Denver to the 10th Circuit Court of
Appeals a block away.
Nacchio, 58, has to file a notice of appeal within two weeks.
After a schedule is set, which could take three to four months,
his attorneys will begin filing briefs for their case.
Strategy of appeal
They'll probably appeal the verdict, sentence and denial of
bail. The bail appeal will go through an expedited process,
with a decision rendered within weeks.
After reviewing a 59-page defense filing that discusses the
issues Nacchio's attorneys plan to raise on appeal, two legal
experts said the odds are stacked against him.
"It's unlikely that it will be reversed," said Henning, a
professor at Wayne State University Law School in Detroit.
Former federal prosecutor William Mitchelson echoed those
"Nacchio has tough sledding on appeal," said Mitchelson, now a
white-collar criminal defense lawyer in Atlanta.
Also working against Nacchio is Nottingham's reputation.
"Judge Nottingham has a good reputation as being a careful
judge, and reputation counts at the Court of Appeals," Henning
On Nacchio's side is his financial resources. Qwest must
advance his legal fees under corporate bylaws, and Nacchio has
sued the company to ensure that the payments continue.
Still, only 3.9 percent of the criminal judgments reviewed by
the 10th Circuit during the year ending Sept. 30 were reversed,
according to Federal Judiciary statistics.
"His lawyers got quite a bit of what they wanted (during
trial). Now they're forced with coming up with reasons why the
judge was incorrect," said Raymond Dean Jones, a former Colorado
Court of Appeals judge. "It will be very tough for him to win
The appeal will predominantly be a paper battle. The only oral
arguments will be made in front of a three-judge panel during a
single hearing that could last a few hours. That hearing might
not happen for another nine to 12 months.
Though there could be others, the four issues Nacchio's
attorneys said they plan to raise involve jury instructions,
exclusion of defense expert testimony, insufficient evidence to
convict and rulings related to Nacchio's classified-information
"Jury instructions are a classic area to get a conviction
reversed," Henning said.
Mahoney helped the now-defunct accounting firm of Arthur
Andersen get its obstruction-of-justice conviction overturned by
the Supreme Court on the basis of a deficient jury instruction
related to intent, Henning said.
She'll use that approach in Nacchio's case too.
Mahoney will focus on the fact that Nottingham didn't include a
jury instruction proposed by the defense dealing with
forward-looking statements. The defense wanted an instruction
that said Nacchio didn't have to disclose what was being told to
him privately by his top lieutenants and that any public
statements he made couldn't be used to convict him unless they
were unreasonable or in bad faith.
During trial, several former Qwest executives testified they
repeatedly warned Nacchio the company would struggle to hit
financial targets in late 2000 and in 2001. But Nacchio
continued to reiterate positive financial guidance to analysts
and investors until late 2001.
The prosecution charged Nacchio with 42 counts of insider
trading in early 2001. Jurors acquitted him on the first 23
counts but found him guilty on 19 counts connected to $52
million in stock sales made in April and May 2001.
Nacchio's attorneys also plan to attack Nottingham's instruction
on "nonpublic information." The instruction said prosecutors
only had to prove the information wasn't disclosed; they didn't
have to prove it should have been revealed to investors.
"Nacchio will have to show that the District Court either
confused the jury by giving an improper instruction or gave the
wrong instruction," Mitchelson said. "That will be a tough
undertaking for him."
The law of insider trading is not particularly new, he said.
"Unless the court departed from the established jury
instructions for these kinds of cases, which it didn't appear
that (Nottingham) did, it will be tough," Mitchelson said.
In total, Nottingham has been reversed 14 times out of 108
appeals, which include civil and criminal cases, according to a
study by John Holcomb, a University of Denver associate
professor of business ethics and legal studies.
"He's never been overturned either on jury instructions or on
sentencing," Holcomb said.
Holcomb said Nottingham has been overturned once for improperly
allowing expert testimony.
Nacchio's attorneys plan to argue that Nottingham
inappropriately excluded expert testimony from professor Daniel
Fischel. Holcomb said that's unlikely to be successful because
Nottingham excluded Fischel's expert testimony because he was
going to introduce information that was common knowledge.
Nacchio's appeal "chances are very slim," Holcomb said.
If Nacchio loses on appeal, he can request a special hearing to
have all of the judges in the 10th Circuit review his case.
Those are rarely granted.
His last resort would be to ask the Supreme Court to review the
case, which is an even tougher task.
Nacchio's case capped the federal government's criminal
investigation of Qwest's former executives, which began in 2002
amid questions about the company's accounting for one-time sales
of capacity on its fiber-optic network. Qwest later restated
$2.5 billion in revenue booked from 2000 to 2002. Nacchio
served as Qwest's CEO from 1997 to June 2002.
Denver-based Qwest, which is the main local phone company in 14
states, employs 38,000 people, including about 9,000 in
Staff writer Andy Vuong can be reached at 303-954-1209 or
The Joe Nacchio insider-trading case
Where he will serve: That's still to be decided, but
Nacchio has asked to serve time at Schuylkill Federal
Correctional Institution in northeastern Pennsylvania. Such
requests are usually granted. Schuylkill currently houses 1,348
medium-security inmates and 302 minimum-security inmates.
What's next: Nacchio plans to appeal the verdict, sentence and
denial of bail pending appeal with the 10th Circuit Court of
Appeals in Denver.
He still faces a Securities and Exchange Commission fraud
lawsuit and a Qwest shareholder lawsuit.