No Nachos for Nacchio

The U.S. Supreme Court denied certiorari regarding Joe Nacchio, a former Qwest chief executive, appeal of his insider trading conviction. Qwest Communications International, Inc. is a Denver based telecommunications company. In 2007, a jury convicted Joe Nacchio, on 19 counts of illegal insider trading because Nacchio illegally dumped $52 million worth of Qwest stock based on insider information that Qwest was performing much worse than was being publically stated or forecasted. Judge Edward Nottingham sentenced Nacchio to six years in prison and ordered him to pay $71 million in fines and asset forfeiture.

As a result of Nacchio’s misconduct, thousands of Qwest shareholders blame Nacchio for their retirement losses. "There are people who are going to go to their graves very, very upset with Joe Nacchio," stated Al Lewis, a former business columnist for the Denver Post. However, in 2008, Nacchio’s conviction was reversed by a three-judge panel within the Tenth Circuit for the U.S. Court of Appeals. Almost a year later, the full Tenth Circuit reversed the decision, and teed up the process for an appeal to the Supreme Court.

Nacchio’s legal battle is far from over. In July 2009, an appeals panel that had previously granted Nacchio a new trial, awarded Nacchio a new sentence, ruling that trial Judge Edward Nottingham miscalculated when he ordered Nacchio to serve six years in prison and pay $71 million in fines and forfeitures. The appellate panel suggested that the sentence was excessive because the sentence penalized Nacchio for the natural appreciation of his Qwest shares, not just the benefit Nacchio gained from trading on inside information. The appellate court's ruling will likely result in a shorter prison term-- approximately 3.5 years imprisonment rather than 6 years and smaller financial penalties for Nacchio’s insider-trading conviction.

Nacchio’s legal expenses continue to be paid by Qwest because a corporate arrangement requires Qwest to pay for Nacchio's defense under its corporate bylaws and indemnification agreement. "It was a huge amount of money for [Nacchio] to spend. [On his appeal] he had one of the best known lawyers in the United States, Maureen Mahoney, representing him," Lewis stated. Lewis estimates that Nacchio's legal bills could easily total $75 million.

The Securities & Exchange Commission is also pursuing a civil lawsuit against Nacchio and other former Qwest executives. That case is expected to go to trial in early 2010.

Lydie Nadia Cabrera Pierre-Louis
St. Thomas University School of Law
lplouis@stu.edu