Guest Commentary: John Holcomb (Professor, Daniels Business School)

Much has been made in the press about Judge Nottingham’s rulings that have favored the defense: (1) excluding evidence of revenue restatements as not proximate in time to the alleged insider trading by Nacchio, (2) excluding evidence of Nacchio’s transfer of assets to his wife, and (3) excluding the testimony of Qwest shareholder Ms. Anderson that she had increased her shares of Qwest of stock to constitute 100% of her total investments. Some reporters and commentators believe the exclusion of such evidence increases the chances of a Nacchio acquittal. Perhaps it does, but it also may insure that any guilty verdict would be appeal-proof, and that may be Judge Nottingham’s larger concern and reason for ruling in a conservative and restrained fashion on motions related to such evidence.

Further, the evidence of revenue restatements and of harm to Qwest shareholders may not be so critical to the government’s case. Both of those realities may very well be appreciated by the jury without having further evidence introduced that they occurred. The total context of this case involves a company that tanked under Nacchio’s leadership, harming both employees and shareholders, and the jury likely understands those background facts.

As for Nacchio’s intent to use nonpublic information to avoid personal losses, there are elements in the record from which that intent could be inferred. Look for the government to refer to some of these elements in final summation. First, when Lee Wolfe testified, he made it clear that he was involved in similar insider selling concurrently with Nacchio, but that he stopped well before Nacchio did, because he believed it was clearly wrong. For Nacchio not to act on the same realization indicates willful conduct. Second, that Nacchio was jumping in and out of the authorized selling at intervals under section 10b5-1 when he wanted to unload more than pre-authorized shares indicates a desire to game the system based on the nonpublic information he was learning from multiple sources inside the company.

Third, if Nacchio was truly interested in behaving in a high-minded fashion, he would have paid more attention to the Qwest code of ethics than to gaming the system under 10b5-1. That code does not recognize the parameters of authorized selling under 10b5-1 but rather contains a blanket prohibition against insider trading by Qwest employees. Especially since Nacchio was occasionally preaching ethics to his own employees, his own behavior should have been consistent with the code. Taking advantage of 10b5-1 was also taking advantage of a provision suspect in the eyes of the SEC and provision the SEC is looking to tighten, according to an article in The Wall Street Journal of April 4, 2007.

Evidence of the intense and aggressive deal-making culture within Qwest under Nacchio’s tone at the top, along with the private deals made with startup suppliers and investment banks for special access to IPOs would be further evidence of Nacchio’s intent. That evidence might have been allowed under a broader case that included accounting violations but is beyond the scope of the charges in this case however.

As The Denver Post reported, the two character witnesses for Nacchio on Thursday, April 5, accomplished very little. Phil Anschutz was really a big zero for Nacchio. He was very careful and measured in his testimony and said nothing that really helps Nacchio. One might even wonder why he was called to testify for the defense. Beyond remarking on the positive reasons for hiring Nacchio and Nacchio’s personal pain over his son’s attempted suicide, there was nothing directly related to the insider trading charges or Nacchio’s personal ethics or predisposition to engage in such conduct. The prosecution also partially undermined Nacchio’s positive traits by alluding to his negotiated separation from the company, even though Judge Nottingham excluded reference to any “firing.”

As a Benedictine monk who served as headmaster of a parochial school attended by Nacchio’s sons had some warm words for Nacchio, but his credibility was cast into some doubt by his acknowledgement of having received a $1 million contribution and tuition payments from Nacchio.

As of this writing, it is still unknown whether Nacchio will be called by testify. If he does, the prosecution has announced it will call up to eight rebuttal witnesses to contradict Nacchio’s claims regarding classified information indicating positive prospects for the company from government contracts.