News
Appellate Victory for Partner Alexandra Shapiro on Significant Insider Trading Sentencing Issues
On July 31, 2009, in a unanimous ruling, the United States Court of Appeals for the Tenth Circuit vacated and remanded the sentence of Joseph P. Nacchio, the former CEO of Qwest Communications International, Inc., who was convicted of insider trading in 2007. In calculating the alleged “gain resulting from the offense” under U.S. Sentencing Guidelines Manual, the district court included the net profit Mr. Nacchio received from trading in securities while ignoring other factors unrelated to the alleged fraud that could have contributed to the increase in the value of the securities. The district court also ordered forfeiture of the gross proceeds of the alleged insider trading offenses, approximately $52 million.
On appeal, Mr. Nacchio challenged his conviction as well as the district court’s gain and forfeiture determinations. Ms. Shapiro co-authored his appellate briefs, which argued that a “market absorption” approach should be utilized and, as argued by the dissent in United States v. Mooney, 425 F.2d 1093 (8th Cir. 2005) (en banc), that the increased prison sentence should be linked to the gain actually resulting from the offense, not to gain attributable to legitimate price appreciation and the underlying inherent value of the Qwest shares. The Tenth Circuit agreed and held that Mr. Nacchio is entitled to resentencing and instructed the district court to focus on arriving at a figure that more closely approximates the gain resulting from the alleged insider trading. With respect to the forfeiture determination, the Court held that the district court applied the incorrect statute and that Mr. Nacchio should be required to forfeit only his net profit, rather than the gross proceeds, from the trades.
Mr. Nacchio’s conviction was reversed by the same Tenth Circuit panel on March 17, 2008, due to the improper exclusion of the defense’s expert testimony; the panel therefore did not address sentencing at that time. However, the Tenth Circuit granted en banc rehearing and a sharply divided full Court affirmed the conviction, 5-4, and also directed the panel to address the sentencing issues. Mr. Nacchio has filed a petition for certiorari challenging the affirmance of his conviction, which remains pending before the Supreme Court of the United States.
To read the Tenth Circuit’s opinion, click here.
To read an article Ms. Shapiro co-authored on this subject, “Measuring ‘Gain’ under the Insider Trading Sentencing Guideline Based on Culpability for the Deception,” which appeared in the Federal Sentencing Reporter, click here.