Overview of the Sentencing Hearing

Judge Nottingham addressed a number of motions between the parties, heard legal arguments, and finally ruled on the sentence of Joe Nacchio. What follows is an overview of the sentencing hearing:

1. Nottingham ruled that Joe Nacchio's motion for a new trial based upon the failure to grant a change of venue was denied since any pretrial publicity or prejudice did not create a "circus atmosphere" in the courtroom or adversely affect the proceedings as required by case law for a change of venue. The jury, characterized by the judge as extraordinary, made its decision based upon a rational view of the evidence presented.

2. Nottingham ruled that the amount of forfeiture was approximately $52 million dollars representing the gross proceeds of the illegal stock sales. Case law within the 10th circuit required this result even though Nacchio's counsel had argued in a brief that it should be $1.8 million based upon the amount attributable to the value of the material nonpublic information determined by his expert witness.

3. Nottingham ruled that the maximum amount ($1,000,000) of the possible fine per count (19 counts of insider trading) should be the imposed. Using colorful language, the judge noted that Nacchio was responsible for creating a corporate culture at Qwest where greed and consequently, insider trading, became a common occurrence. The judge noted that he needs to send a message that not only does "crime not pay" but that it also costs. The maximum fine of 19 million was being imposed because it is needed to deter the greedy impulses that lead to felonious conduct by executives.

4. The judge heard a great deal of legal argument from both sides on the issue of the appropriate prison term. The following are the legal arguments related to the various components of the appropriate sentencing range under the Federal Sentencing guidelines:

a. Nacchio's counsel argued the imposition of an increase of two base levels for "abuse of trust" was "piling it on" while the government argued that Nacchio was more than a tippee, or an insider giving a tip. Rather, the government argued that Nacchio was the CEO who actively participated in setting the aggressiveness of the forward looking statements and whether they would be changed. Nacchio engaged in insider trading when he was in a position of trust as the CEO of Qwest. The judge ruled in favor of the government to increase the base levels for "an abuse of trust."

b. Nacchio's counsel argued that the aggravating factor of the insider trading sales was not properly calculated by the government. Nacchio argued that the proper calculation should be net of selling expenses and taxes withheld by Qwest in addition to the stock option costs (around 28,000,000 in net gain). Nacchio further argued that the amount of the gain due to the material nonpublic information (1.8 million according to his expert) should be followed based upon the minority opinion in the Mooney case. The judge followed the majority opinion of the Eighth Circuit case in Mooney to base the gain component on "realized gain." However, the judge deviated from the 8th Circuit when he calculated selling costs and withheld taxes to determine the "realized gain" and followed Nacchio's calculation of $28 million. This deviation resulted in a reduction of one base level from the 17 level increase sought by the government. The resulting 16 level increase resulted in a reduction of the overall sentencing range from 70 to 87 months to 63 to 78 months. However, the judge noted that he would ultimately rule where the prison sentence would be within both of these two ranges since they overlap..

c. Nacchio's counsel argued that the illness afflicting Nacchio's son was an extraordinary circumstance justifying probation or a significantly reduced sentence below the federal sentencing guidelines range. Joe Nacchio needed to be with his 26 year old son due to his son's problems. The government argued that Nacchio's wife trained in this medical area could adequately address the son's needs. Nottingham pointed out that Nacchio did not seem concerned about his son's needs when Nacchio decided to take the Qwest job and leave his son for four days of the week. Moreover, Nottingham noted that Nacchio did not quit Qwest when his son attempted suicide.

d. Nacchio's counsel also wanted a downward departure for Nacchio's extraordinary charitable works. However, the government argued that he gave only a "paltry" amount as a percent of his annual gross income. The judge noted that Nacchio's charitable giving was consistent with other CEOs and the community's expectations based upon the amount of money Nacchio was pulling out of the community. Consequently, the judge ruled in the government's favor that Nacchio's charitable works were merely ordinary, not extraordinary.

e. The judge made several interesting comments before deciding Nacchio's actual prison sentence. He discussed the importance that Nacchio's sentence be consonant with the "respect for the rule of law." Judge Nottingham referenced the movie "A Man for All Seasons" and in particular the scene where Sir Thomas Moore said that even the devil is entitled to the rule of law; if not, if all the laws are broken to get to the Devil, who will protect us when the Devil comes after us. We protect the Devil for our own security. He also noted that many CEOs made business decisions that crossed the line based upon a cost/benefit analysis where the short term benefit was high and the associated cost was long term and very speculative. The judge wanted to send a message to CEOs that the cost portion of the analysis is indeed high. Consequently, he sentenced Nacchio to a 72 month sentence or six years.

5. The final issue was whether Nacchio could avoid prison pending his appeal. The judge discussed each "substantial question" likely to result in a new trial asserted by Nacchio's counsel. The judge was convinced that these issues were not close questions and ruled that Nacchio had 15 days to surrender to government authorities.