Nacchio Withdraws Final Appeal

Former Qwest CEO Joseph Nacchio withdrew the final appeal of his criminal conviction on February 11, 2011.  After being sentenced to five years and 10 months in prison following a jury trial, Nacchio originally indicated through court filings that he intended to appeal his criminal sentence.  

The Federal District Court in Denver accepted the withdrawal on February 14, 2011, ending Nacchio's five year legal battle with the Justice Department.

The funds held in escrow to pay off the court-ordered $19 million in fines and $44.6 million in forfeitures will be released to help compensate the victims in the case.

Nacchio's projected release date is May 2014.


Nacchio Reaches Settlement with SEC 

In Securities and Exchange Commission (“SEC”) v. Joseph P. Nacchio (“Nacchio”), the District Court for the District of Colorado entered final judgment against Nacchio pursuant to a settlement reached between Nacchio and the SEC.

The settlement permanently enjoined Nacchio from violating any anti-fraud provisions of both the Securities Act and Securities Exchange Act.  Most importantly, the order permanently prohibited Nacchio from serving as an officer or director of any company required to register securities under Section 12 of the Securities Exchange Act.  In other words, Nacchio cannot participate in the management of a publicly traded company.  Finally, the settlement required Nacchio to pay back approximately $45,000,000 of illegal insider trading profits but was "reduced by any amounts (including accrued interest) forfeited and paid by or on behalf of Defendant Nacchio to the United States in connection with the related criminal case."  Because Nacchio paid $45,000,000 in criminal fines, this effectively eliminated any actual payments in the civil case. 

This order concludes the SEC’s civil case against Nacchio. 

Primary materials are available on DU’s Corporate Governance Website.  


Little Incentive for Resentencing Appeal by Nacchio or Government

Nacchio's attorneys must view the resentencing decision reducing his time in prison two months from the original 72 months as an utter failure in materially mitigating their client's prison term.  After all, the Tenth Circuit's decision requiring a new resentencing hearing provided Nacchio's attorneys a clear roadmap to dramatically reduce Nacchio's sentence in half.  Thus, Nacchio's expert had to convince the resentencing judge that only 1.8 million of the total gain from the insider trades was attributable to material information Nacchio was concealing and not due to pure market forces.  Ultimately, the battle would be between competing expert witnesses on this point, and Nacchio's expert lost this battle.

Of course, Nacchio's attorney made the proper objections to base an appeal, even stating during the resentencing hearing that that they would be considering an appeal.  However, realistically, the basis for the appeal is not a legal one, but a factual one, in which the sentencing judge is given wide latitude to determine the facts of the amount of the gain attributable to the material nonpublic information.  This gain determination was key in determining if Judge Nottingham's initial sentence of six years, or less than 3 1/2 years as contended by Nacchio, was the more appropriate sentence. 

Judge Krieger clearly favored the government's witness in determining the gain due to the material nonpublic information from approximately 23 million to 33 million.  This determination is amazingly close to Nottingham's determination of 28 million although he calculated it differently, and according to the Tenth Circuit, erroneously since he failed to determine how much of the gain he calculated was attributable to Nacchio's use of material nonpublic information.   To arrive at his 28 million, Judge Nottingham had used the simple calculation adopted by the Eighth Circuit in Mooney (425 F.3d 1093) of reducing the total proceeds of $52,000,000 by selling and stock option costs of $7.4 million and related income taxes associated with the gain of approximately 16 million. 

Consequently, Nacchio's attorneys have a tough path to win an appeal.  Likewise, the government has little incentive to appeal the two months prison term reduction.  Long before the resentencing hearing last Thursday, the government had already conceded the forfeiture issue raised by the Tenth Circuit allowing Nacchio to recoup $7.4 million of the $52 million forfeiture he has already paid.  Thus, the only issue was the appropriate prison term.  It is interesting to note had Nacchio's expert witness convinced Judge Krieger to the low 1.8 million gain related to insider trading and thus potentially reducing the sentence in half, the government would have strongly considered appealling, not just on this factual determination, but also for the legal argument that the Tenth Circuit erroneously departed from the Eighth Circuit's approach that created a split in the circuits that must be resolved by the US Supreme Court. 

Future posts will cover the following: (1) why Judge Krieger favored the government's expert witness; (2) why the government conceded the $7.4 million forfeiture issue; and (3) which circuit--the 8th or the 10th--has the better legal arguments in applying the federal sentencing guidelines to insider trading.


Nacchio's Sentence Reduced by Two Months

Today, Judge Krieger re-sentenced former Qwest CEO Joseph Nacchio to 70 months in jail, which is two months shorter than his 2007 sentence of six years.  The court also imposed a fine of $19 million and forfeiture of $44.6 million.

We will post on today's hearing in more detail soon.


United States v. Joseph Nacchio: Judge Krieger Accepts Nacchio’s Waiver of Appearance for June Hearings

In a hearing before Judge Krieger on May 4, 2010, which Mr. Nacchio personally attended, the court found Mr. Nacchio to be “fully competent” to waive his right to appear at his resentencing hearings in June.  Judge Krieger required the May 4th hearing in response to Mr. Nacchio’s request to waive his appearance at his resentencing hearings.  Judge Krieger found it necessary to inform Mr. Nacchio of his right to be present at the hearings in person, and verify that his waiver was both knowing and voluntary.  Mr. Nacchio’s appearance on May 4, 2010 satisfied the court that his waiver was both knowing and voluntary.

We will continue to post on further developments in this matter.


United States v. Joseph Nacchio: Dates set for Phase I and II of Resentencing Hearing

In an order by Judge Krieger on April 22, 2010, the court re-set the two sentencing hearings as follows:

Phase I – the evidentiary phase or hearing on "gain" will be held on June 22, 2010 beginning at 8:30am and will continue as necessary to the following day.  Phase II of the sentencing hearing is set for June 24, 2010 at 8:30am.  No mention was made in this order regarding whether or not Mr. Nacchio will appear at the hearings. Both hearings will be in Courtroom 901 before Judge Krieger.

We will post on further developments as they are announced.


United States v. Joseph Nacchio: Order Denying Motion to Reconsider & Vacating April 21 Hearing

In an order issued today, April 15, 2010, Judge Krieger denied an emergency motion filed by Mr. Nacchio’s attorneys requesting that the court reconsider its order of April 13, 2010 requiring Mr. Nacchio to appear in court prior to his resentencing hearings.  Judge Krieger acknowledged that she has authority to accept a written waiver in lieu of Mr. Nacchio’s personal appearance, but was not willing to do so in this case.

Further, because the the United States Marshall could not bring Mr. Nacchio before the court in time for the scheduled hearing on April 21, 2010, that hearing was vacated.  We will post an update once a date is established for Mr. Nacchio’s appearance.

Primary materials can be found on the DU Corporate Governance website


United States v. Joseph Nacchio: Order requires Nacchio to appear for an Advisement Hearing prior to Resentencing Hearings

On Tuesday, April 13, 2010, Judge Krieger issued an order in response to Joseph Nacchio’s (“Mr. Nacchio”) request to waive his appearance at his re-sentencing hearings.  Our post on Mr. Nacchio’s request as well as the United States Attorney’s (“Government”) objection to that request can be found here

Judge Krieger began her order with a brief overview of the case’s procedural posture and the arguments of both sides concerning the waiver issue.  She followed with an in-depth discussion of Rule 43 of the Federal Rules of Criminal Procedure (“Rule 43”), the basis for Mr. Nacchio’s waiver request.  Judge Krieger stated that a main concern of Rule 43 is to protect a defendant’s rights under the Fifth Amendment’s due process clause and Sixth Amendment’s confrontation clause.  The order further stated that the crux of a right is an individual’s ability to waive it, but that waiver must be both voluntary and informed.  Going one step further, Judge Krieger stated that in order to find a waiver to be informed and voluntary, a defendant should be advised of his rights in court.

Next, Judge Krieger addressed Mr. Nacchio’s case specifically.  She stated that this order views both upcoming resentencing hearings in the same light.  The fact that they were separated into two hearings does not change Mr. Nacchio’s rights regarding them.  After a brief discussion of alternative modes of appearance such as videoconference or remote video, the order stated that such an alternative is not available on these facts.   Judge Krieger deemed only a personal advisement of his rights to be sufficient because: (1) Mr. Nacchio did not allocute at his prior sentencing hearing; (2) Mr. Nacchio changed counsel since his prior sentencing; (3) Mr. Nacchio is incarcerated and the court is unsure what role that plays in his attempt to waive his appearance; and (4) the judge presiding over these hearings is different than the judge who presided over pretrial matters, the trial and prior sentencing.

Judge Krieger concluded by ordering Mr. Nacchio to appear at the earliest possible date for an advisement hearing. If this is not arranged prior to the hearing scheduled for April 21, 2010, that hearing will be moved to the June 24, 2010 hearing date and the hearing currently scheduled for June 24 will be continued.  Judge Krieger acknowledged the expense and inconveniences associated with bringing Mr. Nacchio to court, but nonetheless deemed the hearing necessary to ensure his awareness of the rights he attempts to waive.

We will post on any further developments on this issue.

Primary materials are located at the DU Corporate Governance website


United States v. Joseph Nacchio: Notice to Waive Mr. Nacchio’s Appearance & the Government’s Opposition

This blog covered the Joseph Nacchio (“Nacchio”) criminal trial from the courtroom, and in that tradition, attended the February 10, 2010 rehearing.  At the conclusion of the hearing, the court instructed Nacchio’s attorney to file a motion if Mr. Nacchio wished to waive his right to appear at subsequent resentencing hearings; his counsel has done just that. On March 3, 2010, counsel for Nacchio, Mr. Berkowitz, filed a notice to the court that Nacchio intended to waive his right to be present (the “notice”) at both the April hearing and June sentencing hearings.   

The notice cited to Federal Rule of Criminal Procedure 43(a) for the premise that unless otherwise excused, a defendant must be present at sentencing, but went on to cite subsection (c) of the same Rule as authority for Nacchio to waive his right to be present and for the sentencing to continue in his absence.  Further, Nacchio cited to ample precedent from both the 10th Circuit as well as other courts in support of his claim that a defendant may knowingly and voluntarily waive his right to be present at his sentencing.

Mr. Nacchio’s notice preemptively addressed a forthcoming objection by the government. Nacchio stated that the essence of Rule 43 supports his ability to choose and his right to appear, which he is able to waive.  The notice goes one step further to state that some courts have held that the government lacks standing to object to a waiver such as the one in this case.  Mr. Nacchio also claimed that the government has not issued similar objections in the past, and this case deserves similar treatment. The notice concluded by stating Nacchio understands the ramifications of this waiver and will not file an appeal stemming from this waiver.

As anticipated, on March 15, 2010, the U.S. Attorney’s office filed an objection to Nacchio’s notice of intent to waive appearance.  The government did not object to Nacchio’s absence for the evidentiary hearing in April 2010, but did object to his absence for the June, 2010 final sentencing hearing.  The government based its objection on its reading of Rule 43 as a requirement, not a right.  According to the government, Rule 43 states that absent another binding rule, the defendant must be present at sentencing. The Rule states, “Unless this rule, Rule 5, or Rule 10 provides otherwise, the defendant must be present at: . . . (3) sentencing.”

Since the exception list in Rule 43(b) is exclusive and this case does not fit one of the exceptions, the government contends the “must” language applies to Nacchio.  The objection cites to the Supreme Court’s decision in Diaz v. United States as authority for their position that the decision is not the defendant’s to make. Diaz v. United States, 223 U.S. 442 (1912), which held in part that where the offense is not capital and the defendant is not incarcerated, defendant may waive his right to appear by voluntarily “absenting himself” from trial.  The government further contends that ordering Mr. Nacchio’s appearance is in line with the aims of the penal system and the idea of incarceration.

Further, the government’s objection claims that even if the court does not find Rule 43 to require Nacchio’s appearance, the court should not deviate from the normal rule of imposing a sentence with the defendant present. Once a defendant waives his right under Rule 43, the court has discretion whether or not to continue with the sentencing without the defendant present.  Further, the objection argued the basic principle that a court should sentence felony defendants in person, and this case should not be an exception.

Finally on March 19, 2010, Nacchio filed a response to the government’s objection stating it ignored 10th Circuit precedent and the court should honor Nacchio’s voluntary and knowing waiver.  This response went as far as to say that there is no case law to support the government’s idea that a court can recognize a defendant’s right to waive his appearance and subsequently require him to attend anyway.  The reply concluded with a reiteration of why the court should accept Nacchio’s waiver of appearance.

We will post on the court’s ruling on this matter.

Primary materials for this post can be found on DU’s Corporate Governance website


United States v. Joseph Nacchio: Evidentiary Hearing Needed for the Court to Properly Determine Gain

As part of the Race to the Bottom’s continuing coverage of Joseph Nacchio’s criminal trial, a group of student contributors attended the first hearing in his resentencing on February 18, 2010.  This hearing was at the United States District Court for the District of Colorado, before Judge Krieger.  The parties jointly requested this hearing, hoping Judge Krieger would rule on the gain element of Mr. Nacchio’s sentence without any further proceedings on the issue.  Judge Krieger saw the issue differently.

Judge Krieger opened the proceeding by asking the parties why they asked for the hearing.  Based on remarks in the Joint Statement Regarding Sentencing Procedures, both the Government and Nacchio’s defense counsel contended that they believed Judge Kreiger could determine “gain” based on the motions provided.   Judge Kreiger addressed this issue by stating she had reviewed the 1600+ pages of pleadings.  She explained that after a thorough examination of all of the information, there were numerous outstanding issues that require an evidentiary hearing. 

Judge Krieger stated that although the disgorgement analysis mentioned by the 10th Circuit will act as the guidepost for determining gain, the facts of this case do not fit neatly into that analysis.  When discussing the reports prepared by experts for both the Government and Mr. Nacchio, Judge Krieger noted the two experts used almost identical methodology in their calculations.   What made the experts’ analyses differ were the facts and assumptions throughout their calculations.   Among those differences were the conflicting dates of disclosure used by the experts and the affects of the September 11, 2001 terrorist attacks in relation to Nacchio’s disclosure on September 10, 2001.  As a last note, the court found the expert reports were attempting to proffer legal arguments and therefore, on their own, not a sufficient basis for her to make a ruling on gain.

The court concluded by setting an evidentiary hearing for April 21-22, 2010 in order to flesh out the analysis and rule on gain.  The parties agreed that the only two witnesses at this hearing will be their experts and that the previously filed reports will account for the majority of the direct testimony, followed by cross, redirect and questions from the court.  The court stressed its desire for a brief argument and that the court did not need further briefing beyond the already submitted 1600 pages.   Lastly, Judge Kreiger will announce an oral ruling on the gain issue at or shortly after the hearing’s conclusion. This ruling will determine the appropriate sentencing range under the Federal Sentencing Guidelines.

The court also set Mr. Nacchio’s final resentencing hearing for June 24, 2010.  In this hearing Judge Kreiger will hear arguments regarding the requirements of 18 U.S.C. § 3553(a), which direct the court to consider a list of factors before determining the final sentence. 

Just before Judge Kreiger concluded the February 18th hearing, she asked Mr. Nacchio’s counsel if Nacchio wished to exercise his constitutional right to appear at the resentencing hearings, which his attorney attempted to waive.  The Government objected, seemingly insisting upon Mr. Nacchio’s attendance.  Judge Kreiger gave Nacchio 14 days to advise the court of whether he wishes to waive his right to appear.  The U.S. Attorney will have 10 days from the date of that filing to object to Mr. Nacchio’s decision.

Primary materials are located at the DU Corporate Governance website


Kicking Off Coverage of the Joe Nacchio Resentencing Hearings

Last Thursday, counsel for former Qwest CEO Joseph P. Nacchio (“Nacchio”), and for the U.S. Attorney’s Office, appeared in the United States District Court for the District of Colorado before the Honorable Judge Kreiger to begin the process of resentencing.  A full post discussing the actions of Judge Kreiger will be forthcoming shortly.   

The Race to the Bottom provided continuing coverage of the criminal trial.  Since Nacchio’s conviction, this blog covered the Tenth Circuit appeal overturning his conviction, the replacement of Judge Nottingham, the en banc rehearing to reinstate his original sentence, Nacchio’s petition for certiorari to the Supreme Court, and the dismissal by the District Court of Nacchio’s motion for a New Trial based on new evidence. 

We have also extensively covered the Tenth Circuit’s opinion regarding “disgorgement,” and the calculation of Nacchio’s gain in connection with his insider trading; you can read about it here

To briefly summarize, however, the primary issue on appeal was what method to use to measure the gain Nacchio received as a result of insider trading activities.  The 10th Circuit adopted an approach to compute “gain” under the Federal Sentencing Guidelines that conflicted with the Eighth Circuit.  The 10th Circuit stated that their economic approach would (1) “take into account that Mr. Nacchio’s offense did not inhere in his sale of the shares itself, but in the deception intertwined with the sales due to his possession of insider knowledge, and (2) that consequently would endeavor to compute his gain for sentencing purposes based upon the gain resulting from that deception.”  U.S. v. Nacchio, 573 F.3d 1062, 1072 (10th Cir. 2009).  The court then concluded that the civil disgorgement remedy provides an appropriate “guidepost” for computing how much of the gain is attributable to the “deception” of insider trading.

However, as seen in Judge Kreiger’s courtroom yesterday, using the disgorgement standard as a guidepost is not an easy matter. Both sides have produced thousands of pages of evidence in addition to complicated expert reports.  Judge Kreiger set an evidentiary hearing for April 21-22 to address the expert reports for calculating gain.  

We look forward to keeping you apprised of step-by-step developments in the ongoing saga of the Ex-Qwest CEO. 

The primary materials in this case can be found at the DU Corporate Governance web site.    


Nacchio Motion for New Trial Dismissed: Szeliga Deposition Brings Nothing New to the Table

The Race to the Bottom covered the criminal trial of ex-Qwest CEO Joseph Nacchio (“Nacchio”).  Since his conviction, this blog has covered the appeal which overturned his conviction, the replacement of Judge Nottingham, the en banc rehearing which reinstated his sentence, and Nacchio’s petition for certiorari to the Supreme Court.  In the newest chapter of this saga, on January 12, the District Court of Colorado dismissed Nacchio’s Motion for New Trial based on new evidence.

The defense’s motion claimed that Robin Szeliga’s (“Sleliga”) deposition testimony to the SEC two years after the conclusion of the trial created recognizable “new evidence” which was sufficiently significant to grant a new trial. 

During the 2007 criminal trial, Szeliga testified about communications between herself and Nacchio concerning Qwest’s 2001 financial target shortfalls.  Qwest kept two sets of revenue targets.  The first was an internal target unknown to the investing public and the second was public.  Szeliga learned in 2000 that there was a $1 billion shortfall risk in Qwest revenues.  She also testified that she communicated this billion dollar risk to Nacchio.  Confusion ensued during Szeliga’s trial testimony on whether she told Nacchio the billion dollar shortfall related to the internal or public targets.  If the risk related to internal targets it represented 1.4% of Qwest’s revenues, while if the risk corresponded to the public target it was 4.2% of Qwest’s revenues.  During Szeliga’s SEC deposition testimony two years after the trial she seemingly testified about the billion dollar shortfall relating to the internal and not public figure.  In her deposition, however, she continually cautioned SEC attorneys that her recollection was vague and that she needed to look over documents to refresh her memory. 

Nacchio contended in his motion that Szeliga’s deposition was new evidence that confirmed the billion dollar risk related to the internal targets, representing 1.4% of Qwest’s revenues.  In particular, Nacchio claimed this affects the materiality of the communications, thereby requiring a new trial.

A motion for new trial under Federal Rule of Criminal Procedure 33 based on the discovery of new evidence requires: “(1) the evidence was discovered post-trial; (2) the failure to discover the evidence was not caused by the defendant’s lack of diligence; (3) the new evidence is material to the principal issues involved; (4) the new evidence is not merely cumulative or impeaching; and (5) the new evidence would probably produce an acquittal in a new trial.”  The court focused its analysis on the last two elements. 

New evidence cannot be merely cumulative or impeaching.  As explained by the court, cumulative evidence simply confirms or corroborates evidence already established by other evidence.  Impeaching evidence simply calls a witness’ credibility into question.  The court noted Szeliga’s trial testimony thoroughly examined her communications with Naccio and the existence of a substantial risk shortfall.  Both the prosecution and defense had ample time to explore these issues in their direct, cross examination, and redirect.  In fact, it was these exhaustive examinations which lead to the confusion about whether the billion dollar risk applied to the internal or public targets.  The court held Szeliga’s SEC deposition could only be cumulative or impeaching.  The deposition added no new information and did not recant her trial testimony.  Notably, Szeliga continually told SEC attorneys that she was having trouble recollecting specifics about their questions.  Her deposition would only corroborate that her statements to Nacchio about the billion dollar risk did apply to the internal targets or would simply undermine her credibility, nothing more. 

Lastly, the court stated the deposition testimony continued to demonstrate Szeliga’s inconsistent testimony about which financial target her communications with Naccio concerned.  For the court, the deposition testimony fell well short of demonstrating reasonable probability of resulting in an acquittal.

Accordingly, Judge Krieger dismissed Nacchio’s Motion for New Trial.  The Race to the Bottom will continue its coverage of the Nacchio saga as it develops.  

The primary materials in this case can be found at the DU Corporate Governance web site.    


Department of Justice Declines to Pursue Nacchio Resentencing Appeal

As part of the Race to the Bottom’s continuing coverage of Joseph Nacchio’s legal saga, Professor O’Brien posted on the 10th Circuit’s decision on Nacchio’s sentence. A three-judge panel remanded the calculation of Nacchio’s sentence to U.S. District Court for being excessive. The panel ruled the initial sentence improperly calculated Nacchio’s gains from insider trading. The amount gained from insider trading dictates the sentence length. If the U.S. District Court finds the gain was overstated, Nacchio’s sentence will likely shrink from its current six years.

As reported in the Denver Post, the Department of Justice will not to appeal the decision to remand the sentence. The Department of Justice had the options of asking the panel to review the decision, requesting an en banc review, or appealing the decision to the Supreme Court.


Nacchio Appeal Postponed

The Supreme Court did not resolve the appeal of Joe Nacchio.  The Monday list of matters (the last of the term) did not address the case.  As a result, it will be considered in the next term.  The WSJ has a story on the non-decision.  

It is hard to believe that the Court would take the case on the basis of the exclusion of Nacchio's last witness.  On the other hand, the case also raises the issue of materiality.  The Court may see it as a vehicle to further restrict the reach of Rule 10b-5, a philosophy by the Court articulated in Stoneridge.

The answer should be in September.


Nacchio v. US: An Update (The Race to the Bottom Makes an Appearance)

We are in the middle of the "director compensation project," a series of posts exclusively by students who show the amount of compensation paid to directors and the amount of compensation to the CEO (including perks).  Is there a relationship?  You decide.

In the meantime, we take a moment to provide an update on the conviction of Joe Nacchio.  Of particular interest, one of the judges on the Tenth Circuit, Mike McConnell, announced he was resigning and taking a position at Stanford.  Judge McConnell wrote the majority opinion in the Nacchio appeal, reversing the conviction, a decision that was ultimately overturned by the court en banc (with McConnell writing a vigorous dissent).  The motive for the change is unclear, although there are many possibilities (pay, regime change and the reduced possibility of a Supreme Court appointment). 

It is the case, however, that for most judges (the Delaware courts excepted), positions on the federal bench largely limit their ability to weigh in on the important legal issues of the moment out of concern over the appearance of bias or prejudgment.  Judge McConnell will have a much less constrained position as Professor.

At the Supreme Court, a series of amicus briefs have been filed on behalf of Nacchio.  Some of them are posted on the DU Corporate Governance web site.  They were filed by the Chamber of Commerce, the National Association of Criminal Defense Lawyers, and the Washington Legal Foundation, all of whom filed briefs in the lower courts.  We note that in one of the briefs, The Race to the Bottom, made a guest appearance.  In the brief filed by the National Association of Defense Lawyers and the New York Council of Defense Lawyers.  According to the brief:

  • Even detractors of such testimony observe that the Tenth Circuit in this case has perhaps written “the final chapter in the era of excessive deference to economic analysis.” J. Robert Brown, U.S. v. Nacchio: The Death Knell for Special Treatment of Economic Analysis in Securities Cases?,, Feb. 26, 2009,

The government has until May 22 to file its response. 

In the district court, Nacchio has requested a new trial based upon evidence obtained in the civil action brought by the SEC.  He has requested a hearing.  The government has opposed the request for a new trial.


US v. Nacchio: The Final Chapter?

Joe Nacchio went to prison last Tuesday in Pennsylvania after the 10th Circuit and Justice Breyer denied his petition for certiorari. The only remaining issue, therefore, is whether the Supreme Court will hear the case.  A tantalizing suggestion in the Tenth Circuit opinion suggests that it will not.

The 10th Circuit order was issued by the same panel that reversed the lower court and ordered a new trial (before being overturned by the circuit en banc).  In other words, it couldn't be described as a court hostile to Nacchio.  In the order, the panel had this to say about Nacchio's petition before the US Supreme Court:

  • Mr. Nacchio, on the other hand, maintains that he must show only that there is a reasonable chance that the Supreme Court will accept certiorari. Renewed Emergency Application for Release at 9-11; Reply Br. at 2. We need not decide this question, however, because the showing as to even the more lenient standard is insufficient: Mr. Nacchio has not shown that there is a reasonable chance that the Supreme Court will grant his petition.  (emphasis added)

This is no idle statement.  This comes from a panel that includes a Judge (McConnell) who takes pride in the fact that the US Supreme Court has taken five cases (Wikipedia says four but Judge McConnell noted at the University of Denver a few weeks ago that there was a fifth) where he has written an opinion (whether majority, dissenting or concurring) and the Supreme Court had decided in a manner consistent with those opinions and another judge who sided with Nacchio in the merit appeal and the earlier request for bail.  Having said that, as the commentator to this post notes, Judge McConnell did dissent from the decision to deny bail. 

And, right now, the panel is saying that the Court won't take the Nacchio appeal.


US v. Nacchio: The Bail Petition and "A Hope of Attracting the Interest of the Supreme Court"

We have not been following closely the back and forth on whether Joe Nacchio should be released on bail pending the outcome of his petition for ceriorari in the US Supreme Court.  Nonetheless, we were aware of the 34 page opinion issued by Judge Krieger (federal district court in Denver and successor to Judge Nottingham) denying Nacchio bail and ordering him to appear at prison on Tuesday of this week.

In our review of the cert petition, we were highly critical of some of the legal arguments contained in the document, viewing them as either incorrect or overstated (that had Nacchio disclosed the internal projections at issue, other circuits would have "regard[ed] [the statements] as misleading and punish[ed] him for disclosing;" and that if the opinion was upheld, insiders "cannot buy or sell company shares ever.").  The arguments were presumably stated in such a fashion to attract the attention of the Supreme Court to the case.

As a result, we read with interest the opinion by Judge Krieger and viewed her characterization of the cert petition with interest.  She had this to say:

  • At this point, some of the newly-formed arguments raised in the Petition appear to be strategically crafted to create the appearance of circuit split on issues of law with a hope of attracting the interest of the Supreme Court.  But in doing so, the Defendant has been forced to mischaracterize the holdings and reasoning of the Tenth Circuit panel and en banc decisions and to elevate dicta in cases from other circuit courts.

The case is on appeal to the Tenth Circuit where bail is unlikely to be granted then on to the Supreme Court.  From the looks of things, Nacchio will be reporting to prison on Tuesday as commanded by Judge Krieger.

The primary materials in this case can be found at the DU Corporate Governance web site.


Nacchio and the Supreme Court: The Cert Petition (A Prediction)

Predicting what will happen to a cert petition is not always easy.  This case has a couple of things going for it.  Maureen Mahoney is well known to the justices and anything she authors will likely get a serious examination.  Likewise, the advocacy of Judge McConnell on the Tenth Circuit, a smart and conservative judge, will likewise cause some on the Court to pause over the case.  The closeness of the en banc (it was, after all, a 5-4 decision) also helps.  Finally, the case involves Rule 10b-5 and the Supreme Court expressed a willingness in Stoneridge to put an end to any more expansion of the antifraud provision.  The Court could decide that this case presents another opportunity to implement that agenda.

Weighing in against the granting of certiorari is that the case really doesn't raise particularly important legal issues.  It mostly turns on the facts.  The real question is not about the standard of materialty for internal projections but whether Nacchio had in his possession facts that indicated his projections to the market no longer had a reasonable basis.   A jury found that he did.  While it is possible to argue the facts either way (that the information was too uncertain, that the percentage of the shortfall was not enough to cross the materiality threshold), the jury found otherwise.  For the Supreme Court to come out in Nacchio's favor, it will have to find that the information known to Nacchio was immaterial as a matter of law.  This is unlikely.

Our prediction:  Cert denied.


Nacchio and the Supreme Court: The Cert Petition (The Ghost of Judge Nottingham Returns)

Judge Nottingham continues to be the additional judge in the decision making process.  After laying out a series of legal arguments about the reasons for reversal, Nacchio's cert petition takes direct aim at the trial judge.  As the brief notes:

  • As the en banc dissenters explained in detail, the majority mischaracterized the district court’s decision, ignored settled law, and ducked meritorious issues to gloss over obviously prejudicial errors by a district judge whose “sense of fairness toward this defendant” was very much in doubt, App.92a (McConnell, J., dissenting), and who openly displayed ethnic bias against the defendant and his counsel and recently resigned in disgrace in a lurid prostitution and obstruction of justice scandal.

While it seems fair game to argue that in a close case on the evidentiary issue, there was some evidence of unfairness towards the Defendant, the brief goes well beyond that.  It suggests that the Court ought to take a close look at the matter because of the moral turpitude of the trial judge. 

It is an interesting approach and one that ordinarily would be high risk.  Judges do not take kindly to aspersions cast on other judges.  Nonetheless, with someone as experienced in Supreme Court behavior as Maureen Mahoney, she must be thinking that in this case, the reference to the trial judge's out of the courtroom peccadilloes will attract the eye of some justices, perhaps those with an accentuated sense of morality and self righteousness.  One can only guess who that would be.


Nacchio and the Supreme Court: The Cert Petition (Officers Cannot Buy or Sell Shares "Ever")

The cert petition takes the position that, based upon the 10th Circuit's holding, insiders "cannot buy or sell company shares ever."

This is another example of hyperbole masquerading as analysis. The sentence is only potentially correct if in fact an insider always knows inside information and cannot disclose the inside information to the public.

Nacchio was convicted of having inside information. The information was internal data suggesting that the forecasts he had issued to the public were no longer valid. Had Nacchio wanted to trade, he merely needed to tell this to the market. Had he disclosed that there was doubt about the validity of the external forecasts, he likely would have been able to trade (assuming there was nothing else going on that qualified as material).

Moreover, once disclosure occurred, Nacchio would have been able to sell shares with impunity. While insiders often come into contact with inside information that interferes with the ability to trade, the Commission has addressed this by allowing insiders to put in place non-discretionary trading plans under Rule 10b5-1. Had Nacchio disclosed that there was internal information suggesting the forecasts were no longer valid and then put in place a 10b5-1 plan, he would have been able to sell as many shares as the plan permitted.