Latham & Watkins appellate chief Maureen Mahoney couldn't get the full 10th U.S. Circuit Court of Appeals to overturn the insider trading conviction of former Qwest CEO Joseph Nacchio last winter, but on Friday she won a ruling that will at least shorten Nacchio's prison sentence (pdf). In a 59-page opinion, a three-judge panel of the 10th Circuit concluded that the district court erred in sentencing Nacchio to six years on the basis of alleged insider trading gains of $28 million. The court reversed the sentence and remanded Nacchio to federal district court for resentencing. He could face as little as 3 1/2 years.
The ruling continues Nacchio's long roller-coaster ride through the criminal justice system. As we chronicled in a 2007 American Lawyer story, Nacchio was first indicted on sweeping fraud charges back in 2003. But after the government stumbled in its first Qwest trial, a new prosecution team stepped in with a tighter, more focused theory of the case against Nacchio. In 2007, a federal jury in Denver convicted the onetime CEO on 19 counts of insider trading. In 2008, a divided panel of the 10th Circuit held that certain expert testimony had been improperly excluded and ordered a retrial for Naccho, but then, on en banc rehearing, the 10th Circuit reinstated his conviction.
In appealing Nacchio's sentence, Latham & Watkins focused on the profit he netted from the alleged insider trading. Denver federal district court Judge Edward Nottingham based Nacchio's six-year sentence (and $71 million in fines and forfeitures) on his supposed $28 million in profits. But Mahoney argued to the 10th Circuit that Nacchio had actually gained only $1.8 million from the allegedly illegal trades.
The appeals panel said in its order that "an insider trading defendant's 'gain' should not consist of the total amount that the defendant realized from his or her stock sales, but should be limited more specifically to the gain that resulted from trading with insider knowledge." The court also ruled that Nacchio was improperly ordered to forfeit $52 million, the proceeds he earned from the stock sales.
On the appeal with Latham (which did not return our call for comment) was Nacchio's trial counsel, Stern & Kilcullen. Stephan Oestreicher Jr., of the Justice Department's criminal division argued the appeal for the government. Justice Department spokeswoman Laura Sweeney told us the government is reviewing the 10th Circuit's decision.
This article first appeared on The Am Law Litigation Daily blog on AmericanLawyer.com.