Summary
Joseph Nacchio, former CEO of Qwest, is currently serving a six-year sentence for insider trading. Nacchio was convicted of insider trading after he exercised his Qwest stock options at the same time he received information that Qwest's 2001 earnings were in danger of falling nearly one billion dollars short of projected revenue estimates. The Tenth Circuit's decision in Nacchio II is problematic for two reasons: first, the court conflated the requirements of Rule 16 disclosures and the Daubert standard for qualifying experts by creating an onerous burden on defendants attempting to admit expert testimony at the early stages of trial. The Tenth Circuit's decisions in the Nacchio line of cases will impact corporate officials who are honestly trying to comply with insider trading laws, and will generally lead to greater confusion in the Tenth Circuit for juries and judges when faced with complex insider trading issues.
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Extract
Insider Trading and Soft Information: U.S. V. Nacchio
I. INTRODUCTION
Joseph Nacchio, former CEO of Qwest, is currently serving a sixyear sentence for insider trading. Nacchio was convicted of insider trading after he exercised his Qwest stock options at the same time he received information that Qwest's 2001 earnings were in danger of falling nearly one billion dollars short of projected revenue estimates. Nacchio's case is unique because it demonstrates the importance of following proper procedure when introducing expert testimony in a criminal trial under the Daubert standard, as well as the difficulty of determining "materiality" in an insider trading case based on "soft" information.The Tenth Circuit's decision in Nacchio II is problematic for two reasons: first, the court conflated the requirements of Rule 16 disclosures and the Daubert standard for qualifying experts by creating an onerous burden on defendants attempting to admit expert testimony at the early stages of trial. Additionally, Nacchio ITs stringent "soft" information requirement may discourage companies from disclosing accurate or ambitious revenue projections to the public given the potential liability for insider trading if internal documents question the accuracy of those projections. Investors may thus be left with less information to inform their investment decisions.II. FACTS AND PROCEDURAL HISTORYA. Qwest's 2001 Earnings EstimatesIn September 2000, Qwest made public its 2001 earnings projections. Qwest CEO Nacchio1 announced the company's projected total revenue would be in the range of $21.3 to $21.7 billion.2 Qwest also prepared internal targets higher than the projections announced publicly...See the full content of this document
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