Bush-Era Mississippi, Qwest Cases Still Make News

Two significant federal political prosecutions from the last decade are still making news this week.

In Mississippi, U.S. District Judge Henry Wingate again postponed resentencing of the imprisoned trial attorney and Democratic fund-raiser Paul Minor, whose prosecution on corruption charges in 2003 helped Republican Haley Barbour, below left, win the state’s governorship.

Haley BarbourIn New Jersey, imprisoned former Qwest Communications CEO Joseph Nacchio sued his politically well-connected former lawyer, Herbert Stern, on grounds of ineffective legal work during Nacchio’s prosecution on insider trading charges – despite Stern’s $25 million in legal fees.

The Justice Integrity Project has tracked both their cases after researching evidence that the Bush Justice Department targeted them both improperly for political reasons.

The reasons? Minor was a highly successful plaintiffs attorney in torts cases against corporations, and also the leading donor to Democrats in Mississippi, including judges who seek donations in a system of elections. Democrats were vigorously contending a decade ago for state and local offices. But years of news reports about charges arising from loans and donations such as his, categorized as bribes by authorities, helped Republicans win state and local offices.

Regarding Nacchio, he was the only one of the nation’s top telecom CEOs in 2001 to decline Bush administration requests to provide customer records without guarantees of legal compliance for widespread federal surveillance. Nacchio regarded the secret federal requests as violating wiretapping law and company policy. At the time, his company's stock price had also slipped badly during the so-called telecom "tech wreck" of 2000-2001 affecting many companies. He sold personal stock holdings during that period, making him vulnerable to an aggressive political prosecution.

Years previous, the nation’s insider trading laws were enacted with vague language, as author Harvey Silverglate has demonstrated in his important 2009 book, Three Felonies a Day: How the Feds Target the Innocent. Vague law permits authorities to make new law, in effect, by selecting particular targets for enforcement in a process that is often too complicated for many to understand.

As a result, authorities pillory some and largely ignore others for similar conduct, as Silverglate and other critics have shown..

Mississippi Delay

On Monday in Mississippi’s federal courthouse in Jackson, Wingate again postponed his decision on how to resentence on bribery charges Minor and two former judges, John Whitfield and Wes Teel.

Wingate, portrayed at left in a file photo, previously said he would rule promptly on an obligation mandated by a 2009 appeals court decision. “Another day, another delay,” opened a Jackson Clarion-Ledger news account. Minor’s attorney, David Debold, told the paper he hoped the delay signals that the trial judge is seriously considering a defense request to vacate the convictions.

“Debold said he knows it's not easy for a judge to reverse a case this late but it's the right thing to do in the wake of the high court decision limiting the honest services statute,” the paper reported. In December 2009, the 5th U.S. Circuit Court of Appeals ordered the defendants resentenced after the court threw out their bribery convictions. The appellate court also upheld Minor’s racketeering conviction and the “honest services” convictions under a law that the Supreme Court has since seriously questioned.

Roger Shuler, an Alabama legal commentator whose research parallels our own research on the Minor case, published another column this week describing the trial judge Wingate as an ally of a politicized Bush Justice Department. Wingate, the first African-American federal judge in modern Mississippi history, was appointed in 1985 after earning support from the state’s Republican senators.

Shuler is among those arguing that groundless charges against Minor helped Barbour’s election victories that have helped transform Mississippi to solid Republican majorities on state and county levels, not just for federal office-holders. Barbour was Republican National Committee Chairman from 1993 to 1997. Later, Barbour became a prominent lobbyist in Washington, including co-ownership of The Caucus Room with the prominent Democratic lobbyist Tommy Boggs of the prominent firm Patton Boggs. The restaurant is located across the street from FBI headquarters and just a block from Justice Department headquarters and lobbyist Jack Abramoff’s former restaurant.

As a predecessor effort to creating our Project, we organized a breakthrough conference in 2009 at the nearby National Press Club on political prosecutions in the United States. Its 13 speakers included Oliver Diaz, a Republican former Supreme Court Justice in Mississippi.

Diaz described for that audience – which included those watching nationwide via C-SPAN coverage – how the Bush Justice Department ruthlessly and unfairly prosecuted him and his family in a political vendetta before he won two acquittals. The former justice, whose state holds elections for justice in which lawyers routinely contribute, said the purpose of the DOJ prosecution was to tarnish Democrats such as Minor, right, who had donated to Diaz across party lines because of friendship.

Diaz believes such political prosecutions stemmed directly from the unprecedented mid-term political purges at the DOJ in 2006 to help orient prosecution power to serve the goals of politics.

“Sadly, the Minor case never should have come down to appellate rulings and new interpretations of established federal statutes,” the columnist Shuler wrote this week in a similar view. “But a Bush-appointed prosecutor pursued the case through hung juries and multiple trials and finally got convictions ─ with the help of numerous unlawful rulings from Wingate, a Reagan appointee to the federal bench.” Shuler estimates that his Legal Schnauzer blog has published about a hundred columns about case’s various injustices.

Other views exist, of course. In Mississippi, for example, a conservative new media news and opinion website called Yall Politics has been a vigorous opponent of Minor and strong supporter of Barbour.

Even more important, those seeking to sustain the convictions and long prison sentences include the Obama Justice Department, which has established a remarkable record whitewashing Bush-era wrongdoing in political prosecutions and other law enforcement wrongdoing, as we demonstrated in such columns last year as ”Justice Department Probe of CIA Torture Evidence: Another Whitewash?”  In other words, law enforcement enforcements efforts spanning two different administrations makes it difficult for mainstream “beat” reporters and new media alike to find material to dig deep.

Nacchio’s Struggle
Nacchio’s news this week stemmed from his state court lawsuit against his former attorney Herbert Stern, a former Bush-appointed U.S. attorney for New Jersey. Stern’s firm Stern & Kilcullen charged Nacchio $25 million for representation that included Nacchio’s six-week trial. Nacchio’s negligence suit alleges that Stern’s firm billed for thousands of dollars of staff breakfasts, in-room movies and underwear. Stern's firm billed for "duplicative and unnecessary work" including seven attorneys to attend a court appearance, news reports say. Even so, the suit says Stern's firm was "negligent and careless in handling the defense of the criminal action," which resulted in the barring of a key Nacchio witness.

Nacchio, the nation’s only top telecom to insist on a court order or waiver of existing law before turning over customer data to authorities, unsuccessfully maintained at trial that he expected his company to rebound from stock losses with strong showings in winning federal government telecom contracts. Nacchio, 61, is serving a 70-month prison sentence at a federal prison in Pennsylvania after being convicted in 2007 of selling $52 million in stock in Denver-based Qwest based on inside information before its shares collapsed.

"This is a really sad case," said Bruce Nagel, Nacchio’s attorney for the suit against Nacchio’s defense  attorney, Stern. "Bad lawyering resulted in a long jail sentence and $70 million in fines, and Nacchio was grossly overbilled in the process. It is time to deal with this unnecessary injustice."

We contacted Stern for comment and will update this report with any comment we receive from him. Stern’s background is highly distinguished. Among other things, he served as Justice Department trial attorney in the Organized Crime and Racketeering Section from 1965-1969 in the earliest days of its Mafia hunt after Joe Valachi’s 1963 revelations. Stern became New Jersey’s U.S. Attorney from 1971 to1974, and a federal judge from 1974 to1987. He is the author of several books, including “Tiger in the Court” that I favorably reviewed in 1973, and he worked on the Iran-Contra investigation under Independent Counsel Lawrence Walsh.

 

Coming Next on March 25: What do these cases teach about hiring politically well-connected attorneys?

 

 

 

Listed below are selected articles on legal reform and political, security and media factors. See the full article by visiting the Project home page's section on News Reports, and clicking the link under the relevant dates.

Paul Minor Update: AP via Gulf.live.com, Ex-lawyer Paul Minor to be transferred to halfway house on Wednesday, Staff report, Feb. 19, 2013. Paul Minor, who was one of Mississippi's most prominent civil lawsuit attorneys before going to prison in a judicial corruption scheme, is scheduled to be transferred to a halfway house Wednesday, his father said. Minor's father, Bill Minor, said Tuesday that his son will be sent from a federal prison in Pensacola, Fla., to a halfway house in New Orleans to finish out his sentence. Federal prison records show his release date as Aug. 20.

Jackson Clarion-Ledger, Minor, Ex-judges still in limbo, Jerry Mitchell, March 22, 2011. Another day, another delay in the resentencings of former trial lawyer Paul Minor and two former judges imprisoned in a judicial bribery case. On Dec. 11, 2009, the 5th U.S. Circuit Court of Appeals ordered new sentencings after throwing out their bribery convictions. The court also upheld their convictions under the honest services statute and Minor's conviction on racketeering.

Legal Schnauzer, A Bush-Era Political Prosecution Is Back in the Lap of a Corrupt Judge, Roger Shuler, March 23, 2011. How perverse is the U.S. "justice" system? Consider this: When an appellate court finds an error at the trial-court level, it returns the case to the same judge who likely is responsible for the screw up in the first place. That scenario is playing out now in the case of Mississippi lawyer Paul Minor -- probably the second best-known political prosecution of the George W. Bush era, after the Don Siegelman case in Alabama.

Nacchio Insider Trading Case and Appeal

U.S. Supreme Court Petitions To Watch
Nacchio v. United States, No. 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. 

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.)

Nacchio was convicted of 19 counts of “insider” trading, based on sales of Qwest stock between April 26, 2001, and May 29, 2001, using inside information about the risks that the company might not make its projected revenue targets for that year.  He was sentenced to six years in prison, fined $19 million, and ordered to forfeit about $52 million. (Nacchio has appealed to the Supreme Court to challenge his conviction, in Nacchio v. U.S., docket 08-1172. After the Tenth Circuit had upheld his conviction, Nacchio pursued a separate challenge to his sentence, contending that the trial judge misapplied the federal Sentencing Guidelines. He won on his key legal point in the Circuit Court’s July 31 ruling. In general, the Circuit panel adopted a variation of the so-called “market absorption theory,” as applied directly to “insider” trading. Simply put, this theory suggests that, if an “insider” trades on private information about the company, the gain made from the transactions will be reduced if there is evidence that — once all investors had access to that information — the market absorbed it, so that any gain beyond that point for the “insider” would be due to market activity, not the continuing effect of the illegal trading.

Nacchio's Judge Resigns In Sex Scandal, Other Irregularities Alleged

New York Times, New Trial Is Ordered for Qwest Ex-Chief, Dan Frosch, March 18, 2008. A federal appeals court panel reversed the insider-trading conviction of Joseph P. Nacchio, the former chief executive of Qwest Communications International, on Monday and ordered that Mr. Nacchio receive a new trial in front of a different judge. Joseph P. Nacchio, the former chief executive of Qwest, accompanied last July by his wife, Ann, before his sentencing in Denver. He appealed his conviction for insider trading. Judge Paul J. Kelly and Judge Michael W. McConnell of the United States Court of Appeals for the 10th Circuit ruled for the majority in a 2-to-1 decision that a federal district court judge had wrongly excluded an expert witness for Mr. Nacchio during his trial last year.

Federal prosecutors accused Mr. Nacchio once a rising star in the telecommunications world, of knowingly concealing Qwest’s mounting financial troubles from investors, despite warnings from other executives, while simultaneously selling millions in personal shares. In a month-long trial, Mr. Nacchio’s defense team argued that Mr. Nacchio had not sold his shares because he was trying to hide information, but because the options were to expire soon. Last April, a Denver jury convicted Mr. Nacchio of 19 of 42 counts of insider trading, acquitting him of 23 other charges. In July, Judge Edward W. Nottingham sentenced him to six years in prison and ordered him to pay a fine of $19 million and forfeit $52 million in money he had earned from stock sales in 2001.

Mr. Nacchio, who has remained free on bond, appealed the conviction, arguing that there was inadequate evidence to convict him, that the jury had received improper instructions and that Judge Nottingham had wrongly disallowed expert testimony critical to his defense. Judge Kelly and Judge McConnell ruled that the exclusion of the expert witness warranted a new trial, and that the initial evidence presented was enough for the government to try Mr. Nacchio again. The witness in question, Daniel Fischel, an expert on corporate finance, was expected to testify that the pattern of Mr. Nacchio’s stock sales did not appear reliant on the insider information he was privy to as chief executive. But Judge Nottingham, siding with federal prosecutors, barred Mr. Fischel from presenting his analysis on the basis that the defense had not adequately disclosed his methodology and that his testimony could have an unfair influence over the jury. Mr. Fischel was only permitted to testify to the facts of Mr. Nacchio’s stock dealings.

AP via Summit Daily, Judge Nottingham Resigns, P. Solomon Banda, Oct. 31, 2008. A chief federal judge in Colorado who resigned amid misconduct allegations last week faced claims from an appellate judge Former U.S. District Judge Edward Nottinghamthat he patronized prostitutes, according to court documents released Thursday. The 10th U.S. Circuit Court of Appeals dismissed the complaints against Edward Nottingham, whose resignation went into effect Wednesday. In an order, Chief Circuit Judge Robert H. Henry said the complaints are unnecessary in light of Nottingham's resignation. He said the misconduct procedures apply only to active federal judges, noting Nottingham had resigned. Nottingham also faced an allegation from a prostitute that he had asked her to lie, according to the documents released by the Circuit Court on Thursday. It was unclear whether a criminal investigation is under way. Jeff Dorschner, a spokesman with the U.S. Attorney's Office, and FBI spokeswoman Kathleen Wright said they could not comment on the matter. Nottingham presided over the insider trading trial of former Qwest Communications CEO Joe Nacchio. Nottingham [shown in a file photo] ceased judicial activities and announced his resignation Oct. 21 amid investigation of the complaints.

Denver Post, District Judge Nottingham resigns, apologizes, Staff report, Oct. 21, 2008. Chief U.S. District Judge Edward Nottingham has resigned from the federal bench in the midst of an investigation into misconduct outside the courtroom. In divorce proceedings, Nottingham's former wife alleged that he had spent thousands of dollars in a strip club. Since that time, 9News reported that Nottingham's name popped up as a client in an investigation of a Denver prostitution ring and that a prostitute had complained to the 10th Circuit that Nottingham had asked her to mislead judicial investigators about their relationship. In an unsigned statement issued on Nottingham's behalf, the nearly 19-year federal judge apologized for his actions, which have never been formally detailed in an investigation by the 10th Circuit that remains secret. "Under Judge Nottingham's leadership, the District of Colorado developed and implemented several advanced technological methods of conducting court business to include electronic courtroom evidence presentation and electronic case filings," the statement said. "Throughout his judicial career, Judge Nottingham worked tirelessly to ensure that his courtroom and case management practices were premised on the law and applied fairly to all who appeared before him." After working as a judicial clerk and a federal prosecutor, Nottingham was appointed to the bench Nov. 27, 1989 by President George H.W. Bush.

AP via ABC News, Court orders shorter sentence for ex-Qwest CEO Joe Nacchio, P. Solomon Banda, July 31, 2009. An appeals court has ordered a new, shorter sentence for ex-Qwest CEO Joe Nacchio, saying his 6-year term for insider trading was too long. The 10th U.S. Circuit Court of Appeals ruled Friday that the trial judge overstated the amount of Nacchio's alleged financial gain. Nacchio was convicted in 2007 of 19 counts of insider trading and acquitted on 23 counts. Prosecutors alleged he sold $52 million in Qwest Communications International stock based on nonpublic information that the Denver-based telecommunications company was at risk. A three-judge panel at the 10th Circuit Court of Appeals in Denver on Friday agreed with Nacchio's lawyers that the $52 million figure was too high. Instead, the figure used should have been Nacchio's net profit resulting from illegal insider trading. Nacchio's attorneys argue that the former CEO is being punished for the price increase of Qwest stock from 1997, and his actual profit would have been $1.8 million, capping his prison sentence at 4 years, three months.

Law 360, Supreme Court Turns Down Nacchio's Rehearing Bid, Ryan Davis, Nov. 30, 2009. The U.S. Supreme Court has again declined to take up the insider trading case of imprisoned former Qwest Communications International Inc. CEO Joseph Nacchio, rejecting his request for reconsideration after denying his petition for writ of certiorari in October. The court on Monday denied without comment Nacchio's petition for a rehearing of its earlier ruling. The court's denial of his cert petition let stand the disgraced executive's conviction as affirmed by the U.S. Court of Appeals for the Tenth Circuit earlier this year. In his cert petition, Nacchio had argued that the Tenth Circuit improperly allowed critical expert testimony to be excluded from his trial. In March 2008, a three-judge panel of the Tenth Circuit said Judge Edward Nottingham of the U.S. District Court for the District of Colorado was wrong to exclude the testimony of defense expert Daniel Fischel, a professor. The panel overturned Nacchio's conviction by a 2-1 vote and ordered a new trial. The full Tenth Circuit ruled 5-4 in February that the expert testimony was properly excluded as unreliable and reinstated Nacchio's conviction.

The U.S. Chamber of Commerce, the Washington Legal Foundation, the National Association of Criminal Defense Lawyers and the New York Council of Defense Lawyers all filed amicus briefs urging the Supreme Court to hear Nacchio's case, arguing that it raised important questions about the type of expert testimony that can be used in securities litigation. Fischel was Nacchio's only substantive witness and was to have testified that the allegedly inside information Nacchio used had no impact on Qwest's stock price and that his stock sales were consistent with other similarly situated executives, according to the amicus briefs.

Nacchio Case Update

NJ.com/ Associated Press, Ex-Qwest CEO convicted of insider trading sues his lawyers, saying they billed him for underwear, in-room movies, March 23, 2011. The former chief executive officer of Qwest Communications today sued the lawyers [from the firm of former New Jersey U.S. Attorney Herbert Stern] who represented him in his insider-trading case, claiming they "grossly overbilled" him and sought payment for staff breakfasts, underwear and in-room movies.

Denver Post, Former Qwest CEO Joe Nacchio sues his attorneys, Steve Raabe, March 24, 2013. Former Qwest chief executive Joe Nacchio sued his attorneys Wednesday for negligence and overbilling, including charges for lawyers' underwear purchases. The lawsuit alleges that attorney Herbert Stern and his New Jersey law firm of Stern & Kilkullen charged unreasonable and inappropriate fees, and were "negligent and careless" in the defense of Nacchio, who was charged with 42 counts of insider trading in December 2005 and convicted on 19 counts in April 2007 after a 21-day trial. The lawsuit says Stern's firm billed Nacchio more than $25 million for representation in criminal and civil issues. Qwest has covered a portion of Nacchio's legal fees. The suit, filed in New Jersey Superior Court, claims Stern's firm inappropriately billed Nacchio "tens of thousands of dollars for staff breakfasts, the cost of attorney underwear and in-room (hotel) movies." "This billing was outrageous," said attorney Bruce Nagel, whose Roseland, N.J., firm is representing Nacchio in the lawsuit. The suit also alleges that Stern's firm was "negligent and careless in handling the defense of the criminal action. Among other things, they were barred by the trial court from calling a critical expert witness by virtue of their blatant failure to comply with basic litigation procedures."

Denver Post, Former Qwest CEO Joe Nacchio moved from prison to halfway house, Andy Vuong, Denver Post, April 1, 2013. Former Qwest CEO and convicted felon Joe Nacchio is wrapping up more than four years in prison at a halfway house in the New York area. Scheduled for release in September, Nacchio recently was transferred from the minimum-security Lewisburg prison camp in central Pennsylvania. He started his term at the Schuylkill minimum-security prison camp in Minersville, Pa., in April 2009 and was moved to Lewisburg two years later. According to the Federal Bureau of Prisons, Nacchio has been assigned to a residential reentry center, or a halfway house, that is overseen by a community corrections management field office in Brooklyn, N.Y.

 

Contact the author Andrew Kreig or comment