A federal appeals court today ordered a new trial for former Qwest CEO Joe Nacchio, saying the trial judge wrongly excluded expert testimony...
DENVER — A federal appeals court today ordered a new trial for former Qwest CEO Joe Nacchio, saying the trial judge wrongly excluded expert testimony important to Nacchio’s defense in his insider trading case.
Nacchio was convicted in April on 19 counts involving the sale of $52 million worth of Qwest stock in 2001. He was sentenced to six years in prison but remained free on appeal. Jurors acquitted Nacchio of 23 counts.
Prosecutors argued Nacchio sold the stock when he knew Denver-based Qwest was at financial risk but didn’t tell investors. U.S. Attorney Troy Eid called the case the largest insider trading prosecution in the nation based on the number of counts, the amount of money involved and the length of the prison term.
Attorneys for Nacchio told the 10th U.S. Circuit Court of Appeals in December the case against him didn’t meet standards set by previous court rulings.
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Nacchio’s attorney, Maureen Mahoney, also told the court that U.S. District Court Judge Edward Nottingham wrongly prevented a defense witness from testifying and that Nottingham’s instructions to the jury were inadequate.
Mahoney said former Chief Financial Officer Robin Szeliga had told Nacchio roughly $1 billion of revenue in Qwest’s internal budget of roughly $22 billion was at risk, an amount Mahoney argued was not material.
Mahoney said court precedents found that for interim company results to be material, they must suggest an “extreme departure” from how the public expects a company to perform. She argued Qwest’s situation didn’t meet that requirement.
Government attorney Stephan Oestreicher Jr. told judges the case wasn’t strictly about numbers but the fact that unknown to the public at the time, Qwest’s business plan was failing. He also argued that Nacchio had told his employees that missing public financial targets by just $50 million was huge because Qwest’s stock would get “whacked.”
At the appeals hearing, the judges repeatedly asked Oestreicher why Nottingham denied Daniel Fischel from testifying in Nacchio’s defense. Prosecutors say the defense didn’t establish the reliability of Fischel’s opinions or disclose how he arrived at them.
Nacchio’s attorneys say Fischel, an expert on corporate law and markets, was a core part of his defense and could have explained to jurors what must be publicly disclosed and that Nacchio’s stock sales were to diversify his portfolio. Mahoney said a reasonable jury hearing testimony from Fischel would have acquitted Nacchio.
During his trial, prosecutors said Nacchio knew his company was at financial risk at the time he was selling shares but didn’t tell investors. His sales came before Qwest shares plummeted.
Mahoney argued in court briefs that Nacchio’s stock sales were not based on nonpublic information and that he had announced his decision to sell shares well in advance.
She also said Nacchio’s sentence was calculated incorrectly.
Nacchio still faces a civil fraud lawsuit filed by the Securities and Exchange Commission (SEC) against him and four other former Qwest employees. The SEC alleges they coordinated a financial fraud that allowed Qwest to improperly report approximately $3 billion in revenue. Qwest later restated its revenue to erase $2.2 billion.