Tenth Circuit Reverses Nacchio Insider Trading Convicitions, Remands To New Judge

The US Court of Appeals for the Tenth Circuit in Denver on Monday reversed the convictions of former Qwest CEO Joe Nacchio and remanded the case for retrial before a different circuit court judge. Nacchio was convicted in April 2007 of 19 of 42 counts of insider trading after a jury trial before US District Judge Edward Nottingham in Denver. The charges arose from his sale of $101 million worth of Qwest stock in 2001 while allegedly knowing that Qwest’s outlook was deteriorating. He was sentenced to 72 months in prison in July but has remained free on bail pending appeal. Nacchio had appealed on grounds that the evidence was insufficient to convict him, that the jury instructions were improper and that Judge Nottingham improperly excluded exculpatory evidence: an expert witness and classified information. In overturning the convictions the majority opinion states:

• We agree that the improper exclusion of his expert witness merits a new trial, but we conclude that the evidence before the district court was sufficient for the government to try him again without violating the Double Jeopardy Clause.

Professor Daniel Fischel, an expert on corporate law and economics, was the excluded expert witness. Prosecutors had argued that the defense failed to establish the reliability of Fischel’s opinions. Nottingham excluded Fischel in part because he thought it would not be helpful to the jury. But the appeals court rejected that reasoning:

• This misunderstands the nature of economic expertise. An economic expert is permitted not only to tell the jury that an economic concept “is an issue” but to analyze the concept and offer informed opinions. In other words, expert testimony may “assist the trier of fact to understand the facts already in the record, even if all it does is put those facts in context. ….That is why expert economic testimony is routine when a materiality determination requires the jury to decide the effect of information on the market. ….Armchair economics is not the way to decide complex securities cases [citations omitted].

NYT/Reuters here.