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« Joe Nacchio and the Sentencing Guidelines | Main | Sentencing Joe Nacchio: Top of the Guidelines or Downward Departure »
Monday
Jul092007

Government's and Naccho's Different Perspectives on His Sentence

The government filed its “Sentencing Statement” detailing for Judge Nottingham its calculation of the range Nacchio should serve in prison under the Federal Sentencing Guidelines. Mirroring my post on this topic earlier on this blog, the government determined the same factors and a 27 total offense level to arrive at 70 to 87 months (or 5 years, 10 months at the low end and 7 years, three months on the high end) in prison for the judge to consider when sentencing Joe Nacchio on July 27th, 2007.

The actual calculation by the government is below:

Levels Basis

8 Insider trading base level

2 Aggravation for violation of position of trust

17 Adjustment: Gain on shares sold corresponding to the offense

27 Total Offense Level used in the Sentencing Table

For a more detailed explanation of these objective standards in the Federal Sentencing Guidelines, you can go to my post on April 23, 2007 entitled “What Prison Term Range with Nottingham Consider.”

The major dispute between the government and Nacchio’s counsel is the upward adjustment of 17 levels for the “gain on shares sold corresponding to the offense.” Both the government and I calculated the 17 levels based upon the net gain on the insider stock sales computed as follows:

Total Sales Price $ 52,007,550

Nacchio’s Cost        7,315,000

Net Gain              $44,692,550

This method is prescribed by the Federal Sentencing Guidelines and in United States v. Mooney, 425 F.3d 1093, 1100 (8th Cir. 2005) and consequently, Nacchio’s defense counsel will find it difficult to prevail on this issue. His counsel argues that a civil damages model should apply and since Nacchio’s insider trading sales were only inflated by $1.8 million due to the inside information according to his expert, this amount is the limit of his “net gain.” His counsel also argues that the withheld income taxes from the sales for federal and state income tax should also be used to reduce the “net gain.”

Both of these arguments over the “gain” issue are also used in Nacchio’s “Response to Motion of the United States for Entry of Money Judgment (filed 7/6/2007). Under the Federal rules of Criminal Procedure, the government is asserting a judgment in the amount of $52, 007,545.47 based upon the total sales price of the insider trades of stock. I will not go into more detail regarding these “gain” issues now since I am going to focus on these issues later this week in the context of the money judgment issue.

The government makes a compelling case that Judge Nottingham should sentence Nacchio on the top end of the guideline range. Based upon the seriousness of the crime, promotion of respect for the law, and deterrence to future criminal conduct for insider trading, the government makes the following factual arguments: (1) Nacchio’s behavior (Nacchio “alone created the environment that enabled him to exploit the fact that he knew in April and May of 2001 that Qwest likely was not going to hit its targets for the third and fourth quarters of 2001”; (2) Nacchio’s education (two masters degrees) and fiduciary positions at Qwest (CEO and Chairman of the Board); and (3) Nacchio’s stock sales (“lead to one of the largest insider trading verdicts in history.”

It is likely that Judge Nottingham will be persuaded by the government’s arguments for the top end unless he takes into account Nacchio’s arguments below for a downward adjustment of the sentence. However, it is extremely unlikely that Judge Nottingham would make a downward adjustment below the low end of 5 years, and 10 months as discussed below.

Nacchio’s attorneys filed a motion on July 6th, 2007 to seek downward adjustments to his sentence below the range of the federal sentencing guidelines (as stated previously, below 5 years and 10 months). The motion is appropriately entitled as follows:

MOTION FOR A DOWNWARD DEPARTURE PURSUANT TO 18 U.S.C. § 3553(b)(1) and U.S.S.G. § 5K2.0 BASED UPON EXTRAORDINARY FAMILY CIRCUMSTANCES AND U.S.S.G. § 5H1.11 BASED UPON EXTENSIVE CIVIC, CHARITABLE AND OTHER PRIOR GOOD WORKS

This motion is short only relying on the undisclosed facts in the sealed Presentence Report by the US Department of Probation. The motion does provide an inkling of what the Report addresses: (1) a concern that a lengthy sentence will have on the life expectancy of two of his immediate family members; and (2) Nacchio’s charitable works deserve leniency.

The government points out on page 37 of its “Sentencing Statement” that the Presentence Report does not advocate these downward departures; it merely identifies the two factors that may warrant departure from the advisory guideline range. The government makes it clear that it will “oppose any request for a departure below the low end of the guideline range” for these reasons.

Addressing the “extraordinary family circumstances” issue, government cites States v. McClatchey , 316 F.3d 1122, 1130-31(10 Cir. 2005) for the rule that this downward adjustment applies only where the defendant is the only person that can take care of a family member. Since Nacchio’ wife “has the time and resources” to care for the children, the government asserts the exception does not apply and states the following:

“While Dr. Hammer certainly paints an unfortunate picture of David Nacchio’s prognosis, it simply does not justify absolving the defendant from his crimes and allowing him to avoid his just punishment.”

Addressing the issue of Nacchio’s charitable works, the government again cites case law that only extraordinary charitable works will support a more-lenient sentence and business executives do not meet this test since they ordinarily become leaders in community charities. The government labels Nacchio’s charitable works as not extraordinary, but ordinary and “entirely consistent” with Qwest’s business development goals.

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