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August 11, 2009

DOJ not to appeal Tenth Circuit sentencing ruling in Nacchio case

In posts here and here discussing the Tenth Circuit panel's important ruling that reversed the sentence imposed on former Qwest CEO Joe Nacchio following his conviction for insider trading, I suggested that the Justice Department might not even bother to seek en banc or SCOTUS review of the panel work.  Thus, I was not too surprised by this new post, headlined "Analysis: New approach to 'insider' gains," by Lyle Denniston at SCOTUSblog. Here are the basics:

A major dispute over how severely to punish a corporate “insider” who makes gains from tradmg 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 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.

Only two federal appeals courts have ruled on that theory. The Eighth Circuit rejected it in its 2005 divided en banc decision in U.S. v. Mooney. Embracing the views of the Eighth Circuit dissenters, and creating a direct conflct, the Tenth Circuit embraced the theory. That conflict increased the prospect that the Supreme Court could take up the issue.  But, the Justice Department will not test it in the Nacchio case, either by seeking Circuit en banc review or by filing a Supreme Court petition. “We will not be seeking further review,” a Department spokesperson, Beverley Lumpkin, said on Tuesday in response to a query.

August 11, 2009 at 05:58 PM | Permalink


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