Ex-Qwest Chief Nacchio Loses Bid for Reduced Sentence
By Joel Rosenblatt
June 24, 2010
June 24 (Bloomberg) -- Joseph Nacchio, the former chief of Qwest Communications International Inc., lost a bid to reduce his insider trading sentence by almost half after a judge heard arguments on how much he gained from his crime.
U.S. District Judge Marcia Krieger in
Nacchio, 61, of
Nacchio, over the objection of at least one Qwest officer he worked with, “refused to tell investors about the breakdown of revenue,” Krieger said at today’s hearing. Specifically, he withheld how much Qwest was relying on riskier, declining, non- recurring sources of revenue, she said.
‘Assess the Risk’
”Mr. Nacchio knew what the risk was, he could assess the risk” as he sold more than $50 million in Qwest shares in 2001, Krieger said. “The public did not know.”
Krieger, who didn’t preside over the trial, heard from experts for the government and Nacchio who performed “event studies” purporting to determine the amount Nacchio made from inside information by measuring how investors reacted to certain disclosures on particular days.
Krieger said she found the government’s expert, finance
professor Anjan Thakor, “more persuasive” because he used a
“macro approach” relying on more events that covered a longer
time span. Thakor, of
The analysis of Nacchio’s expert, law professor Daniel Fischel, was “constrained” and “underestimates the effect of the information on the market,” Krieger said, because he relied on a narrow definition of insider trading and based his report on fewer events over a shorter time.
Nacchio’s lawyer, Sean Berkowitz, suggested today that a sentence of three-and-a-half to four-and-a-half years would be adequate. He objected to the $19 million fine, saying “something in the several million dollar category” would be enough.
Insider trading cases typically involve defendants who traded on information that is “self evidently” critical to investors, such as an undisclosed, pending merger, Berkowitz said. Nacchio is the first executive ever prosecuted for trading on undisclosed internal predictions about “perceived risks” to future financial results, he told the court.
In court filings and at the hearing today, Berkowitz used personal descriptions of Nacchio in appealing for a reduced sentence. Nacchio is an ”average guy” and a “straight shooter,” according to the filings. He is also ambitious and hard working, the filings said, citing the example of Nacchio’s running shoes coming apart during a marathon and his finishing the remaining 6.2 miles of the race “essentially shoeless.”
Berkowitz declined to comment after today’s hearing.
“No one wants to invest in a rigged game,” Assistant U.S. Attorney James Hearty told Krieger at today’s hearing. Nacchio’s violations represent “the most aggravated type of insider trading cases,” he said. “Mr. Nacchio controlled Qwest and he created the situation that’s at issue here.”
The case is
--Editor: Fred Strasser, Peter Blumberg
Joel Rosenblatt in San Francisco at email@example.com.