DENVER—A federal appeals court reinstated the insider trading conviction of former Qwest CEO Joe Nacchio in a split decision Wednesday and lifted the stay that had spared him from starting a six-year prison term.
Nacchio’s attorney strongly suggested she would appeal.
“We are optimistic that the Supreme Court of the United States will review the case,” Maureen Mahoney said in a written statement. She stopped short of saying an appeal would be filed and didn’t immediately return calls.
There was no immediate word on when and where he would have to turn himself in.
A three-judge panel of the 10th U.S. Circuit Court of Appeals last year had overturned the conviction, ruling that the trial judge improperly barred testimony from a defense witness.
But in a 5-4 ruling, the full 10th Circuit said Wednesday the trial court was “well within its discretion” to keep the witness off the stand.
The four dissenting judges disagreed strongly. “We have nagging doubts about the district judge’s sense of fairness toward this defendant. If the decision here was not an abuse of discretion, we wonder what one would look like,” they wrote.
Acting U.S. Attorney David Gaouette said the ruling means “justice has been served.”
Former U.S. Attorney Troy Eid, who helped oversee the government’s case against Nacchio, said he never doubted the conviction would be reinstated.
“It’s exactly as it should have been from the get-go,” he said.
Mahoney, though, said the ruling Wednesday conflicted with rulings by other appeals courts around the country.
She said she was “profoundly disappointed” by the decision.
A jury convicted Nacchio in 2007 of 19 counts of insider trading while acquitting him on 23 counts of the same charge.
Federal prosecutors alleged Nacchio sold $52 million worth of stock at a time when he knew Denver-based Qwest Communications International Inc. was at risk while other investors did not.
He was sentenced to six years in prison, but he has remained free during his appeal.
At trial, Nacchio’s lawyers wanted author and Northwestern University professor Daniel Fischel to offer an explanation for the fall in Qwest stock and to discuss whether Nacchio’s trading pattern was suspicious.
The trial judge, U.S. District Judge Edward Nottingham, barred Fischel’s testimony over concerns about his methodology. Nacchio’s lawyers argued that Nottingham didn’t give them a chance to establish his reliability.
Nottingham has since resigned amid unrelated complaints that he patronized prostitutes.
Two of the dissenting judges were on the three-judge panel that overturned Nacchio’s conviction in March.
Still unresolved are Nacchio’s challenges of his sentence and how much of his assets he will have to forfeit if the conviction stands.
Peter Henning, a professor at Wayne State University in Detroit and an expert in white-collar crime cases, said he expects Nacchio to appeal.
“When you have that close of a split (the 5-4 vote), he will appeal this to the Supreme Court.”
Nelson Phelps, executive director of the Association of U S West Retirees, which also represents Qwest retirees, said most of his members welcome the latest ruling.
“So many of our people were hurt by his shenanigans and lost quite a bit of their retirement savings because they had so trusted the company,” he said.
Cliff Stricklin, lead prosecutor at Nacchio’s trial, said the ruling was a big win for the government and the retirees. He said he did not expect the Supreme Court to take up any appeal. “There’s been eight years of legal wrangling on this decision. The bottom line is Nacchio’s going to prison,” he said.
Nacchio, a former longtime AT&T executive, moved to Qwest after being passed over for the top job at AT&T. He resigned from Qwest in June 2002, about two months after Qwest disclosed that the Securities and Exchange Commission had opened a formal inquiry into its accounting.
He still faces a fraud lawsuit that the SEC filed against him and other former Qwest executives. The SEC alleges they orchestrated a financial fraud that forced the telecommunications company to restate $2.2 billion of revenue.
Qwest is the primary telephone provider in 14 mostly Western states.
Stricklin, who is now in private practice, also worked on the prosecution of former Enron CEO Jeffrey Skilling and founder Ken Lay.
“At the time, we thought that we were at the conclusion of something. Now it appears we were only at the tip of the iceberg,” he said. “This will give the government a better foundation to investigate and prosecute corporate crime.”
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AP Business Writer Sandy Shore and Associated Press Writer Ivan Moreno contributed to this report.
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