Appeals court orders new trial for Nacchio

Nottingham concluded that expert economic analysis would “invite the jurors to abandon their own common sense and common experience and succumb to this expert’s credentials.”

“When the court does not allow a lawyer to present arguments, we will not penalize him for failing to present them,” two members of the appeals panel wrote.

The third member, Judge Jerome Holmes, said the majority opinion “elevates form over substance” and said Nottingham was correct to exclude Fischel.

Nacchio maintained he was optimistic about Qwest’s future because he knew of potential contracts the company could land from secret government agencies. He did not present that argument during his trial.

All three judges agreed in Monday’s ruling that information about government contracts could not exonerate Nacchio, even if presented.

The case grew out of a multibillion-dollar scandal that forced the telecommunications company to restate $2.2 billion of revenue. Federal regulators have said Qwest falsely reported fiber-optic capacity sales as recurring instead of one-time revenue between April 1999 and March 2002.

Prosecutors argued Nacchio knew his company was at financial risk at the time he was selling shares but didn’t tell investors. His sales came before Qwest shares plummeted.

Mahoney had argued that Nacchio’s stock sales were not based on nonpublic information and that he had announced his decision to sell shares well in advance.

She also said Nacchio’s sentence was calculated incorrectly.

Mahoney said former Chief Financial Officer Robin Szeliga had told Nacchio roughly $1 billion of revenue in Qwest’s internal budget of roughly $22 billion was at risk, an amount Mahoney argued was not material.

Mahoney said court precedents found that for interim company results to be material, they must suggest an “extreme departure” from how the public expects a company to perform. She argued Qwest’s situation didn’t meet that requirement.

Oestreicher told judges the case wasn’t strictly about numbers but the fact that unknown to the public at time, Qwest’s business plan was failing. He also argued that Nacchio had told his employees that missing public financial targets by just $50 million was huge because Qwest’s stock would get “whacked.”

In its ruling, the appeals court said that “it would be unreasonably difficult to expect this judge (Nottingham) to retry the case with a fresh mind.”

Nacchio still faces a civil fraud lawsuit filed by the Securities and Exchange Commission against him and four other former Qwest employees. The SEC alleges they coordinated a financial fraud that allowed Qwest to improperly report approximately $3 billion in revenue. Qwest later restated its revenue to erase $2.2 billion.

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