Judge Nottingham's Sentencing Error a Harmless One

After Judge Nottingham had denied the two downward departure requests from Nacchio (extraordinary family situation and extraordinary charitable works), I assumed Judge Nottingham would follow the government's perspective (including my own in an earlier blog post) that the proper prison term range was 70 to 87 months under the federal sentencing guidelines. The government argued vigorously that the high range or 7 years was appropriate and Judge Nottingham made it clear he wanted to send a message to CEOs that the cost associated with violating the rule of law would be high. However, Judge Nottingham did mention that he would take into account Nacchio's strong history in providing for his family and his strong bond with his son when determining the length of Nacchio's sentence. Consequently, I was expecting a sentence between 6 and 7 years.

While Judge Nottingham ruled that the just sentence for Joe Nacchio would be 72 months or 6 years, it was his legal analysis that surprised me since it involved a clear error according to the Mooney case in the 8th Circuit that he said he was following to ignore Nacchio's approach (1.8 million of gain due to the material nonpublic information). The judge ruled that the majority opinion in Mooney was correct to determine the "“the total increase in value realized through” his illegal stock sales by income tax withholdings." In Mooney, the 8th Circuit specifically noted that the proper approach is to take the gross sales price less the cost of the stock to determine the applicable "increase in value realized." The Mooney majority pointed out that this approach is the same as Section 1001 of the Internal Revenue Code.

However and unexpectedly, the judge specifically deviated from Mooney and further reduced (approximate numbers) the $44,000,000 (gain realized= $52,000,000 less 8,000,000 in stock option costs) by the $16,000,000 in income taxes withheld by Qwest to arrive at a gain realized by Nacchio of $28,000,000. This approach by the judge thus resulted in an aggravation increase of 16 levels instead of the 17 levels according to the gain chart below from the Sentencing Guidelines (Section 2F1.1):

(Q)	More than $20,000,000	add 16
(R)	More than $40,000,000	add 17

 
Thus with one less level in the calculation, Judge Nottingham determined that the range should be 63 to 78 months.

The government's "Sentencing Statement" (which I concur) provides the following legal analysis on this point that the 17 agravation levels should be used because the $44,000,000 gain was the appropriate "value realized":

Remarkably, the defendant also claims that the calculation of his gain from his illegal stock sales should be reduced by the amount of income taxes withheld. The defendant cites no authority to support this novel position. The defendant is not entitled to offset “the total increase in value realized through” his illegal stock sales by income tax withholdings. U.S.S.G. § 2F1.2, cmt. background. Of course, the amount of estimated income tax that Qwest withheld on the defendant’s illegal proceeds is not the same as what tax he actually paid when he filed his tax returns for 2001.

In evaluating the seriousness of the offense, it would be improper to reduce the defendant’s gain by income tax he paid on the gain. Doing so could skew the calculation based upon income tax factors that have nothing to do with the offense – such as the type of income, the defendant’s tax bracket, his state of residence, his charitable giving, his number of dependents, his other income, and economic losses in the year, and so on. It would introduce needless confusion from irrelevant issues – confusion that was clearly not intended by the Sentencing Commission. “[A] deduction for taxes could create unwarranted complexities . . . . The amount of taxes that a person pays depends upon the nature of deductions taken by the taxpayer.” United States v. DeFries , 129 F.3d 1293, 1314 (D.C. Cir. 1997) (in the context of criminal forfeiture).

Finally, the Commentary to §2F1.2 states that gain is “the total increase in value realized through trading in securities by the defendant.” U.S.S.G. § 2F1.2, cmt. background (2000) (emphasis added). Inclusion of the word “total” indicates that the Sentencing Commission intended use of the gross amount rather than allowing deductions for expenses or income taxes resulting from the gain.

The judge acknowledged that the lower range might be controversial by pointing out that the 6 year sentence (or 72 months) fell within the range requested by the government as well:

Government range:      70 to 87 months  (72 months in the low portion
                                                               of the range)
Judge Nottingham's:    63 to 78 months  (72 months over the middle
                                                               of the range)

Perhaps the judge used the lower range to show leniency to Nacchio and thus deflect perhaps an accusation that he "threw the book" at Nacchio creating an overly harsh sentence since he already sentenced Nacchio to the maximum fines and forfeiture.  This lower range avoided as well the appearance that he was too lenient if he applied the higher range under the Federal Sentencing Guidelines.  While I believe Judge Nottingham's decision incorrectly applied the Guidelines under the Mooney decision, his error was harmless since his decision fell within the government's correctly calculated range.  After all, Judge Nottingham stated that he believed that a judge's sentencing decision was not reviewable if it fell within the range under the Federal Sentencing Guidelines.

Comments

[Matthew]

This judge made more errors than the one above. His arrogant, egotistical approach to this entire trial created an atmosphere where Joe Nacchio could not have been given a fair trial

This was a modern day lynching

Matthew

[Judy]

Arrogant and egotistical? Seems like a good strategy to handle Joe Nacchio. e.g., LIKE FOR LIKE.

I believe Nacchio should have been lynched, and whipped and beaten in public, prior to his trial.

Mistakes in the courtroom as we well know, are common. No, Nacchio did not receive a fair trial. Fair, would have meant more time & more monetary penalty than what he did receive.