Thursday, April 5, 2007
The government rested its case-in-chief in the prosecution of former Qwest CEO Joseph Nacchio on insider trading charges related to his sales of over $100 million in stock in 2001, right before the shares went into a tailspin. The defense now starts presenting its case, and there is a substantial controversy already about whether law professor and former University of Chicago Law School dean Daniel Fischel will be allowed to testify as an expert regarding whether the sales were based on material nonpublic information. The government filed a motion to exclude him from testifying, and if the size of the brief is a measure of the potential importance of the witness, then the sixty-page filing (available below) means Fischel could be quite helpful to Nacchio. The government argues that the defense did not comply with the expert disclosure rules under Federal Rule of Criminal Procedure 16, and more importantly that Fischel's opinions do not qualify as permissible testimony from an expert because he will simply be restating facts that are ultimately up to the jury to decide, giving only his interpretation. The defense report on Fischel's opinions (available below) states he will testify that "the economic evidence is not consistent with the Government's allegation that Mr.Nacchio's stock sales during the first two quarters of 2001 . . . were made on the basis of material nonpublic information." Instead, according to Fischel, the transactions were consistent with Nacchio's stock sales in other periods.
Exclusion of a defense expert can be dangerous because this is the type of issue that can lead to a reversal of a conviction if an appellate court determines that the testimony was admissible. To this point, the judge has kept the parties on a short leash, prohibiting the government from questioning a witness about Nacchio's transactions in 2002 because it was outside the time frame of the indictment. While Fischel is well pedigreed in the law and economics field, the judge may well keep his testimony very close to economic principles and away from broad conclusions about Nacchio's intent. If Fischel is allowed to testify, look for lots of objections from the prosecutors.
The other issue facing the defense is whether it will call Nacchio as a witness. One aspect of the defense is that Nacchio knew about top-secret national security contracts that others in Qwest's management were not privy to, so he did not sell the shares because he anticipated a decline in the stock price but rather only wanted to diversify his finances while believing good things were on the horizon. To establish that defense, it may well be that Nacchio will have to testify because it puts his state of mind at the time of the sales directly at issue, and he's the only one who can say what he knew. The defense could opt not to call Nacchio, but as happened in the trial of I. Lewis Libby, it risks not having any of the evidence of the secret contracts admitted to bolster the claim that he sold for reasons other than the problems with Qwest's deteriorating business -- problems that came to light the following year, leading to a collapse of the stock price. Like most white collar crime cases, the decision to put the defendant on the witness stand depends on a number of factors, many unknowable to the defense lawyers, and whether the decision was a good or bad one ultimately awaits the jury's verdict. (ph)