DENVER - A federal appeals court ordered a new trial yesterday for former Qwest chief executive Joe Nacchio, saying the trial judge wrongly excluded expert testimony important to Nacchio's defense in his insider trading case.
The court also ordered a new judge to hear Nacchio's case.
Nacchio was convicted in April on 19 counts involving the sale of $52 million worth of Qwest stock in 2001. He was sentenced to six years in prison but remained free on appeal. Jurors acquitted Nacchio of 23 counts.
Prosecutors argued Nacchio sold the stock when he knew Denver-based Qwest Communications International Inc. was at financial risk but didn't tell investors. US Attorney Troy Eid had called the case the largest insider trading prosecution in the nation based on the number of counts, the amount of money involved, and the length of the prison term.
"This is a setback, not a defeat," Eid said yesterday. "The good news is the circuit court said our trial team presented sufficient evidence to convict Mr. Nacchio of insider trading."
Nacchio attorney Maureen Mahoney couldn't immediately be reached for comment.
Attorneys for Nacchio told the US Court of Appeals for the 10th Circuit in December the case against him didn't meet standards set by previous court rulings. Mahoney also told the court that US District Court Judge Edward Nottingham wrongly prevented defense witness Daniel Fischel from testifying.
The appeals court rejected Mahoney's argument that Nottingham's instructions to the jury were inadequate. It also rejected an argument that the government failed to introduce sufficient evidence to convict Nacchio.
At the appeals hearing, the judges repeatedly asked government prosecutor Stephan Oestreicher Jr. why Nottingham denied Fischel from testifying.
Nacchio's attorneys say Fischel, an expert on corporate law and markets, was a core part of his defense and could have explained to jurors what must be publicly disclosed and that Nacchio's stock sales were to diversify his portfolio.
Prosecutors say the defense didn't establish the reliability of Fischel's opinions or disclose how he arrived at them.
The three-judge appeals panel focused on how Nottingham announced his decision to forbid Fischel from testifying after accepting written arguments from both sides. Two members of the panel noted how Nottingham silenced a defense attorney who asked to speak, saying he had already ruled because the defense didn't disclose Fischel's methodology.
"When the court does not allow a lawyer to present arguments, we will not penalize him for failing to present them," two members of the appeals panel wrote.
The third member, Judge Jerome Holmes, said the majority opinion "elevates form over substance" and said Nottingham was correct to exclude Fischel.
Nacchio maintained he was optimistic about Qwest's future because he knew of potential contracts the company could land from secret government agencies. He did not present that argument during his trial.
All three judges agreed in yesterday's ruling that information about government contracts could not exonerate Nacchio.
The case grew out of a multibillion-dollar scandal that forced the telecommunications company to restate $2.2 billion of revenue. Federal regulators have said Qwest falsely reported fiber-optic capacity sales as recurring instead of one-time revenue between April 1999 and March 2002.
Nacchio still faces a civil fraud lawsuit filed by the Securities and Exchange Commission against him and four other former Qwest employees. The SEC alleges they coordinated a financial fraud that allowed Qwest to improperly report approximately $3 billion in revenue.