Corporate Governance

Little Incentive for Resentencing Appeal by Nacchio or Government

By Kevin O'Brien

Nacchio's attorneys must view the resentencing decision reducing his time in prison two months from the original 72 months as an utter failure in materially mitigating their client's prison term.  After all, the Tenth Circuit's decision requiring a new resentencing hearing provided Nacchio's attorneys a clear roadmap to dramatically reduce Nacchio's sentence in half.  Thus, Nacchio's expert had to convince the resentencing judge that only 1.8 million of the total gain from the insider trades was attributable to material information Nacchio was concealing and not due to pure market forces.  Ultimately, the battle would be between competing expert witnesses on this point, and Nacchio's expert lost this battle.

Of course, Nacchio's attorney made the proper objections to base an appeal, even stating during the resentencing hearing that that they would be considering an appeal.  However, realistically, the basis for the appeal is not a legal one, but a factual one, in which the sentencing judge is given wide latitude to determine the facts of the amount of the gain attributable to the material nonpublic information.  This gain determination was key in determining if Judge Nottingham's initial sentence of six years, or less than 3 1/2 years as contended by Nacchio, was the more appropriate sentence. 

Judge Kreiger clearly favored the government's witness in determining the gain due to the material nonpublic information from approximately 23 million to 33 million.  This determination is amazingly close to Nottingham's determination of 28 million although he calculated it differently, and according to the Tenth Circuit, erroneously since he failed to determine how much of the gain he calculated was attributable to Nacchio's use of material nonpublic information.   To arrive at his 28 million, Judge Nottingham had used the simple calculation adopted by the Eighth Circuit in Mooney (425 F.3d 1093) of reducing the total proceeds of $52,000,000 by selling and stock option costs of $7.4 million and related income taxes associated with the gain of approximately 16 million. 

Consequently, Nacchio's attorneys have a tough path to win an appeal.  Likewise, the government has little incentive to appeal the two months prison term reduction.  Long before the resentencing hearing last Thursday, the government had already conceded the forfeiture issue raised by the Tenth Circuit allowing Nacchio to recoup $7.4 million of the $52 million forfeiture he has already paid.  Thus, the only issue was the appropriate prison term.  It is interesting to note had Nacchio's expert witness convinced Judge Kreiger to the low 1.8 million gain related to insider trading and thus potentially reducing the sentence in half, the government would have strongly considered appealling, not just on this factual determination, but also for the legal argument that the Tenth Circuit erroneously departed from the Eighth Circuit's approach that created a split in the circuits that must be resolved by the US Supreme Court. 

Future posts will cover the following: (1) why Judge Kreiger favored the government's expert witness; (2) why the government conceded the $7.4 million forfeiture issue; and (3) which circuit--the 8th or the 10th--has the better legal arguments in applying the federal sentencing guidelines to insider trading.

?

Full post as published by The Race to the Bottom on June 28, 2010 (boomark / email).