An appeals court has ordered a new, shorter sentence for ex-Qwest CEO Joe Nacchio, saying his 6-year term for insider trading was too long.
The 10th U.S. Circuit Court of Appeals ruled Friday that the trial judge overstated the amount of Nacchio's alleged financial gain.
Nacchio was convicted in 2007 of 19 counts of insider trading and acquitted on 23 counts. Prosecutors alleged he sold $52 million in Qwest Communications International stock based on nonpublic information that the Denver-based telecommunications company was at risk.
A three-judge panel at the 10th Circuit Court of Appeals in Denver on Friday agreed with Nacchio's lawyers that the $52 million figure was too high. Instead, the figure used should have been Nacchio's net profit resulting from illegal insider trading.
The appeals court did not say exactly what Nacchio's sentence or fine should be, sending those determinations back to a lower court.
Nacchio's lawyers did not immediately return messages seeking comment, while Washington-based Justice Department spokeswoman Laura Sweeney said they were reviewing the ruling.
A securities lawyer in Houston watching the case called Friday's ruling a setback for government prosecutors seeking generous determinations of the harm from fraud.
"The calculation of sentence dollar amounts is hotly contested," said securities attorney Tom Ajamie. "What is the proper dollar amount to look at? The government will want to argue damage to all shareholders, damage to the company, which can be in the hundreds of millions. The defense lawyers will always argue, no, you have to look at the personal gain."
Prosecutors said Nacchio gained $44 million, while the court for sentencing purposes took the prosecutors' figure and subtracted $16 million for taxes. His six-year sentence was based on an alleged profit of $28 million.
Nacchio's attorney's argue that the former CEO is being punished for the price increase of Qwest stock from 1997, and his actual profit would have been $1.8 million, capping his prison sentence at 4 years, three months.
The court wrote that it disagreed with the district court's analysis and said Nacchio's gain should be calculated "in a manner that is more narrowly focused on producing a figure that reflects, in at least approximate terms, the proceeds related to his criminally culpable conduct."
Nacchio was ordered to forfeit $52 million, but the court said that amount should be adjusted to reflect brokerage, commission fees and and other direct costs of trading. The appellate court ruled that the lower court misapplied the law in order Nacchio to forfeit the gross proceeds of the trades.
Using the higher figure to calculate a sentence for Nacchio, the court wrote, "ignored the myriad of factors unrelated to his criminal fraud" that could've affected the value of the securities.
Nacchio has appealed his conviction to the Supreme Court but was ordered to begin serving his prison term in April. He is at the minimum-security Federal Correctional Institution Schuylkill satellite camp in Minersville, Pa.