Comparison of Cases


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Comparison of Cases

U.S. Supreme Court 
Title: Nacchio v. United States, Docket: 08-1172

Issue: Whether the district court correctly instructed the jury on materiality, whether the district court properly excluded the testimony of a witness under Fed. R. Evid. 702, and whether there was sufficient evidence to support the jury’s finding that the defendant knowingly failed to disclose material information on insider trading.  

•    Opinion below (10th Circuit)
•    Petition for certiorari
•    Brief in opposition
•    Petitioner's reply
•    Brief amicus curiae of National Association of Criminal Defense Lawyers (in support of petitioner)
•    Brief amicus curiae of Washington Legal Foundation (in support of petitioner)  
•    Brief amicus curiae of Chamber of Commerce (in support of petitioner)

SCOTUSblog, Analysis: New approach to “insider” gains, Lyle Denniston, Aug. 11, 2009. A major dispute over how severely to punish a corporate “insider” who makes gains from trading in the company’s stock with information other investors don’t have seemed a likely bet for Supreme Court review. But that won’t happen now: the Justice Department has decided not to test the question further, after losing on it recently in the Tenth Circuit Court. In a direct conflict with the Eighth Circuit Court, the Tenth Circuit on July 31 adopted a new theory on stock market activity that can have the effect of sharply reducing the amount of money an executive made on “insider” transactions, leading to a required lowering of the criminal sentence for conviction of that crime.  The Tenth Circuit ruled in the case of a former telecom tycoon, Qwest’s former CEO, Joseph P. Nacchio. ( The ruling can be found here.)

Also, Court of Federal Claims No. 12-20T, Joseph Nacchio and Anne Esker v. US, March 12, 2014. Commentary:

Law 360, Ex-Qwest CEO Can Pursue $18M Tax Refund Tied To Tips, Matthew Villmer, March 14, 2014. A federal court said Wednesday that Qwest Communications International Inc.’s former CEO can seek almost $18 million in tax refunds after he forfeited millions in proceeds from stock sales as part of a criminal conviction for insider trading. U.S. Court of Federal Claims Judge Mary E. Williams blasted the Internal Revenue Service’s argument that Joseph Nacchio was not entitled to a tax refund because his losses were traceable to insider trading, saying public policy has nothing to do with an analysis of the law surrounding tax refunds.

“[T]he government seeks to tax these proceeds not on the ground that they are income, but on an amorphous notion that the public policy against securities fraud must prevent the deductibility of monies that were received due to insider trading even though the monies were disgorged,” Williams wrote. “Applying public policy to preclude a deduction here would not comport with precedent.”
But to get his refund, Nacchio will now need to prove to a trial court that he subjectively believed he had a claim of right to the stock gain he later forfeited in the criminal case.  The case began in April 2007, when a federal jury convicted Nacchio of 19 of 42 insider trading charges, but acquitted him on the other 23 counts stemming from other stock sales. The jury returned its verdict following 15 days of trial and six days of deliberation. Then one month later, Nacchio was sentenced to six years in prison and forced to pay a fine of $19 million as well as forfeit the $52 million profit he had amassed in illegal stock sales. But when it came time to file his 2007 tax returns, Nacchio claimed the disgorgement of his stock gains resulted in a loss, giving him an $18 million credit.
The IRS denied the claim, and Nacchio sued. But on cross motions for summary judgment on the issue of whether Nacchio was entitled to the refund, Judge Williams sided with Nacchio on the legality of the claim.

Joseph Nacchio is represented by William D. Lipkind and Thomas A. Gentile with Lampf Lipkind Prupis & Petigrow PC. The case is Joseph Nacchio v. The United States, case number 12-20T, before the U.S. Court of Federal Claims.


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