We note one odd aspect of the Defendant's brief. The brief begins by a statement about the unprecedented nature of the prosecution of Joe Nacchio. As the brief notes:
- Most insider trading cases involve accusations of trading ahead of merger news or earnings releases, or other “hard” nonpublic information that anyone would recognize as material. This case is completely different; indeed, unprecedented. The government’s sole theory of materiality was that Nacchio somehow knew, eight months in advance, that Qwest would not meet its year-end 2001 revenue projections.
Is this really an "unprecedented" fact pattern? To decide, we took a quick stroll through the SEC litigation release file and found the following cases:
- Insider trading allegations based upon knowledge that guidance provided to the investing public was no longer valid.
- SEC v. Bruce E. Snyder, Jr., Civil Action No. 03 CV 4658, LITIGATION Release No. 19557 (S.D.Tx.) (February 1, 2006)(discussing jury verdict against defendant for insider trading and noting that "The Complaint also alleged that Snyder sold WMI stock again on June 9, 1999, when, in addition to the aforementioned information, Snyder possessed material, nonpublic information that WMI's internal earnings projections showed a large shortfall against the second quarter 1999 EPS guidance WMI had provided to the investing public.");
- SEC v. Salvador Chavarria, Glenn D. Leftwich and John A. Nieto, Civil Action No. 1:07-CV-820-LY, LITIGATION Release No. 20313, United States District Court for the Western District of Texas (Austin Division), Sept. 28, 2007 ("The Commission alleges that the three accountants engaged in unlawful insider trading in the securities of Dell in advance of a public announcement on August 11, 2005 that Dell's second quarter 2006 revenues had fallen short of the company's earlier guidance and analyst' expectations.")
- SECURITIES AND EXCHANGE COMMISSION v. MICAHEL A. OFSTEDAHL, ET AL., United States District Court for the Northern District of California, Civil Action No. C-02-3685 RS, LITIGATION Release No. 17645 (July 12, 2002)("With regard to Puma, which is based in San Jose, California, the SEC complaint alleges that Rutner and Kuncz engaged in insider trading in advance of an August 10, 1998 press release in which Puma announced that its quarterly revenues would be below analysts' expectations.")
- Insider trading allegations based upon knowledge that company would not meet earnings forecasts.
- SEC v. Smith, Civil Action No. 95-6440 - MRP (BQRx), LITIGATION Release No. 16092 (March 19, 1999C.D. Cal.)("In this position, Smith learned that the company's management expected fiscal fourth quarter 1993 revenues to fall below expectations and, later, that revenues had fallen below projections.");
- SEC v. FIRST NATIONAL ENTERTAINMENT CORP., MILTON J. VERRET, RICKY D. BUSBY, MICHAEL D. SWINGLER, RICHARD C. MAESTRE, AUBURN R. BUSBY, AND MICHAEL B. BYRD, Civil Action No. A 95CV371 (AA), LITIGATION RELEASE NO. 15820 (July 24, 1998 W.D. Tex., Austin Division)("The Commission sought disgorgement of illegal insider trading proceeds from Verret and Busby, who sold stock prior to release of the movie while allegedly in possession of material non-public information concerning more realistic revenue projections for the film, avoiding more than $ 4 million in losses.").
Of course, the facts in the Nacchio case are different. But it is not the case that insider trading cases are always about "hard" information. Knowledge that a company will not meet forecasts or guidance given to the market appears to be a not uncommon basis for allegations of insider trading.