Insider Trading

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.

In Manhattan on Monday, a federal jury convicted former Credit Suisse banker Hafiz Muhammad Zubair Naseem on one count of conspiracy and 28 counts of insider trading for tipping off a colleague in Pakistan who traded on inside information of upcoming mergers, resulting in a gain of $7.5 million.  The colleague, Ajaz Rahim, was the chief investment banker at Faysal Bank in Karachi; Rahim is fighting extradition from Pakistan. Naseem was deemed a flight risk and taken into immediate custody pending sentencing. US District Judge Robert Patterson scheduled sentencing for April 7; Naseem faces up to five years in prison on the conspiracy count and up to 20 years in prison on each insider trading count, but prosecutors indicated that sentencing guidelines called for 12 to 15 years total. NYT here, Yahoo/AP here.

• Schering-Plough President Carrie Smith Cox’s large stock sale prior to the public release of the Vytorin clinical trial results has now come to the attention of the Congressional committee already investigating the Vytorin ad campaign. (Junkfood Science; earlier)
• Tom Kirkendall discusses the Enron Task Force’s continued refusal to turn over potentially exculpatory evidence, especially regarding Andrew Fastow. (Houston’s Clear Thinkers)
• Is the DOJ’s prosecution of Geoffrey Fieger a political vendetta? (Scott Horton in Harper’s)

Former Goldman Sachs trader David Pajcin, one of the principals in a wide-ranging $6.7 million insider trading and securities fraud scheme, was sentenced on Friday to time served by US District Judge Victor Marrero in Manhattan. Pacjin had been in prison since early 2006. He had cooperated with prosecutors and his testimony led to subsequent guilty pleas from the other participants.  Yahoo News has the NY Times story here. Eugene Plotkin, a former Goldman Sachs research associate, was sentenced to 57 months in prison earlier this month (Yahoo/Reuters story here).  Defendants Stanislaw Shpigelman and Jason Smith are serving prison sentences of 37 and 33 months respectively and two more defendants are awaiting sentencing.

Merck/Schering-Plough’s Vytorin is a combination of Merck’s Zocor and Schering’s Zetia. Zocor’s patent has expired and Zetia has never been proven effective in improving clinical outcomes. The pharmaceutical joint venture company has been under fire for repeatedly refusing to release the results of clinical trials which examined the effectiveness of Vytorin over Zocor alone. The trials ended in early 2006 . After announced delays in November 2006 and April 2007, the company issued a press release in November 2007 (here) in which it attempted to change the endpoints of the study. After a storm of protest, the company released the results Monday (here): Vytorin is no more effective than Zocor alone.  A Bloomberg story here has further details, including calls by two Congressmen for further investigation of the ad campaign for Vytorin. Sandy Szwarc at Junkfood Science has analyzed the developing story here and previously here.

Now it has been reported (Brandweek NRx via Junkfood Science) that Schering President Carrie Smith Cox sold 900,000 shares of company stock worth $28 million last spring, after the clinical trials ended but long before the results were released. 

Whatever comes next, we can only hope for the demise of the obnoxious and misleading Vytorin commercials.