Former Qwest CEO Receives New Sentencing for Insider Trading Conviction
U.S. v. Nacchio, 2009 WL 2343716 (7/31/09) (Published) - Once again the 10th spends more time and energy on the former Qwest CEO than on all of our clients combined. 59 pages this time. He prevails on guideline and forfeiture questions and in the process creates law that could be relevant to our lowly clients.
The 10th holds that the gain from insider trading that determines the offense level should be based on what the failure to disclose negative information helped the defendant to earn, not the net profits from selling stocks before the information leaked. A lot of the net profits were the result of market forces that had nothing to do with the offense. So, the d. ct. needed to try to figure out what the stocks would have sold for if buyers knew about the negative information.
The most important lesson is that the offense level should be determined based on the culpability of defendants, not happenstance unrelated to culpability. The 10th notes that drug defendants get stuck with high offense levels based on a drug amount they are not aware of and bank robbers get offense levels based on the coincidence of how much money is at the bank at the time. But the 10th says that's not as unfair a situation as with the poor insider trader who is engaging in a lawful activity in an unlawful manner. Also of some relevance, the 10th relies on the notion that guideline commentary must be read in light of the language and intent of the actual guideline and civil case law can be helpful in interpreting the guidelines. The 10th also overturned the forfeiture based on gross proceeds. It should have been based on net proceeds following the subtraction of direct costs. The 10th holds Congress would have used a particular phrase it used elsewhere if it wanted the gross-proceeds approach to apply to insider trading.
The 10th holds that the gain from insider trading that determines the offense level should be based on what the failure to disclose negative information helped the defendant to earn, not the net profits from selling stocks before the information leaked. A lot of the net profits were the result of market forces that had nothing to do with the offense. So, the d. ct. needed to try to figure out what the stocks would have sold for if buyers knew about the negative information.
The most important lesson is that the offense level should be determined based on the culpability of defendants, not happenstance unrelated to culpability. The 10th notes that drug defendants get stuck with high offense levels based on a drug amount they are not aware of and bank robbers get offense levels based on the coincidence of how much money is at the bank at the time. But the 10th says that's not as unfair a situation as with the poor insider trader who is engaging in a lawful activity in an unlawful manner. Also of some relevance, the 10th relies on the notion that guideline commentary must be read in light of the language and intent of the actual guideline and civil case law can be helpful in interpreting the guidelines. The 10th also overturned the forfeiture based on gross proceeds. It should have been based on net proceeds following the subtraction of direct costs. The 10th holds Congress would have used a particular phrase it used elsewhere if it wanted the gross-proceeds approach to apply to insider trading.
posted by Anonymous at 3:10 PM
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