Sunday, March 26, 2006

Nacchio Insider Trading Prosecution Lurches Forward

The securities fraud prosecution of former Qwest CEO Joseph Nacchio moved forward, at least a little bit, when U.S. District Court Judge Edward Nottingham denied the defense motion to dismiss the indictment because it did not identify the alleged material nonpublic information on which he traded.  The court noted that while materiality is an element of an insider trading charge, it is an issue for the jury and the not the judge to decide.  Nacchio did succeed in getting the court to require the government to file a bill of particulars that specifies the negative financial information on which Nacchio is alleged to have traded.  While the indictment accuses him of using the information in selling over $100 million of Qwest shares before the company suffered significant financial problems, it does not state what particular facts were available at the time of the trading. 

The defense opened up another front by asking the district court to change the venue of the case because of negative pretrial publicity, and raising questions about whether Colorado is the proper jurisdiction because the trading did not take place there.  Courts rarely grant a change of venue request because of pretrial publicity, and the standard is quite high, that the publicity is both pervasive and highly prejudicial.  The charges were filed more than four years after Qwest's financial problems came to light, and the alleged crime is not the type of notorious act, such as a high profile murder, that would require a court to move the trial.  The jurisdictional question could be a bit closer, but the fact that Nacchio was the company's CEO in Denver at the time of the transactions is likely sufficient, even if the orders to sell the shares did not come from his office on the day of the trade.

While the case will more forward from here, Judge Nottingham did not set a trial date because the defense stills need to review classified information.  Defense counsel has asserted that Nacchio was privy to national security information about possible programs that could benefit Qwest at the time of his sales, so he had no reason to sell based on undisclosed negative information because he possessed positive information at the same time.  Whether or not that defense will pan out will await trial, but the need to review classified information will slow the pretrial discovery process.  A Rocky Mountain News article (here) discusses the district court's rulings in the case. (ph)

http://lawprofessors.typepad.com/whitecollarcrime_blog/2006/03/nacchio_insider.html

Insider Trading, Prosecutions | Permalink

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