In the Courts

On rehearing en banc, the Tenth Circuit held that the district court had not abused its discretion and the expert testimony had been properly excluded at trial. It affirmed Mr. Nacchio's conviction. A 5-4 majority found that the District Court had rested its decision on, and properly applied, Daubert in performing its gate-keeping role. The majority determined that the defense had not met its burden to establish admissibility of its expert opinion under Rule 702 or Daubert. The court also found that Nacchio had sufficient notice of the Daubert issue and opportunity to respond. Further, the defendant had the burden to prove the admissibility of the expert option and had to request a hearing if he deemed it necessary.

A strong dissent argued that the Rules of Criminal Procedure, unlike those in civil litigation, do not require the defendant to prove the admissibility of its expert testimony through written submissions. In light of these minimal requirements for written expert disclosures under the criminal rules, the dissent thought the district court failed to provide sufficient notice that it would determine admissibility of the expert opinion without a hearing, thus precluding the defense from the opportunity to establish the bases for the opinion. While an evidentiary hearing on the expert's bases was not mandatory, the court had to notify the parties of its intent to forego this standard practice.

Nacchio also moved for a new trial based on newly discovered evidence. Nacchio's attorneys claimed that the SEC deposition of ex-Qwest CFO Robin Szeliga revealed that she advised Nacchio of a more limited risk of the company falling short of projections. The Tenth Circuit denied the motion.

Second Circuit Upholds Denial of Madoff Bail

The Second Circuit affirmed Southern District of New York Judge Chin's decision to deny Bernard Madoff bail pending his sentencing. United States v. Madoff, No. 09-1025-cr, slip op. at 4 (2d Cir. Mar. 20, 2009). On March 12, Madoff pleaded guilty to 11 felony fraud counts in front of Judge Chin. As a part of that plea, he admitted to running a Ponzi scheme for more than a decade until his arrest in December 2008, explaining that he started his scheme in the early 1990s, during the recession, which hurt securities investments. He developed what he termed a “split strike conversion strategy” through which he would invest in the Standard & Poor's 100 index, taking advantage of the market through the timing of his investments, and hedging these investments by buying and selling option contracts related to these investments. He admitted that he never actually made these investments, lying to investors and the SEC to conceal his fraud.

After his plea, the district court determined that, because Madoff is 70 years old, faces 150 years in jail, had the motive to flee, and possessed the means to do so, he posed a flight risk ' the ground for denial of bail pending sentencing.

Once convicted, Madoff had the burden of proving that he was not a flight risk. The Second Circuit panel determined that the District Court did not err in identifying both Madoff's incentive and ability to flee justice. Despite the statutory requirement that the defendant present “clear and convincing evidence that the person is not likely to flee,” 18 U.S.C.A. ' 3143(a), Madoff had argued that analysis of his incentive to flee was improper. Although Madoff claimed that all his assets were “inaccessible,” the panel found that he not only had a foreign residence, but could readily have funds kept abroad. Madoff's sentencing is set for June 16, 2009.

En Banc Tenth Circuit Upholds Conviction of Former Qwest CEO

The Tenth Circuit Court of Appeals, after an en banc rehearing, upheld the insider trading conviction of Joseph P. Nacchio, the former CEO of Qwest Communications International, Inc. (“Qwest”). United States v. Nacchio , 555 F.3d 1234 (10th Cir. 2009). In 2007, Mr. Nacchio was convicted, after a District of Colorado jury trial, of 19 counts of insider trading. He was sentenced to six years of imprisonment, two years of supervised release, a $19-million fine, and $52 million in forfeiture.

The defense's principal claim on appeal was that the trial court erred in excluding its expert economist for failure to meet the requirements of Federal Rule of Criminal Procedure 16, and Federal Rules of Evidence 403, 602 and 702. See Nacchio, 519 F.3d at 1150. The court found that the defense's expert disclosure failed to provide sufficient explanation of the expert's methodology and that his testimony would largely be an unhelpful recitation of the facts.

On rehearing en banc, the Tenth Circuit held that the district court had not abused its discretion and the expert testimony had been properly excluded at trial. It affirmed Mr. Nacchio's conviction. A 5-4 majority found that the District Court had rested its decision on, and properly applied, Daubert in performing its gate-keeping role. The majority determined that the defense had not met its burden to establish admissibility of its expert opinion under Rule 702 or Daubert. The court also found that Nacchio had sufficient notice of the Daubert issue and opportunity to respond. Further, the defendant had the burden to prove the admissibility of the expert option and had to request a hearing if he deemed it necessary.

A strong dissent argued that the Rules of Criminal Procedure, unlike those in civil litigation, do not require the defendant to prove the admissibility of its expert testimony through written submissions. In light of these minimal requirements for written expert disclosures under the criminal rules, the dissent thought the district court failed to provide sufficient notice that it would determine admissibility of the expert opinion without a hearing, thus precluding the defense from the opportunity to establish the bases for the opinion. While an evidentiary hearing on the expert's bases was not mandatory, the court had to notify the parties of its intent to forego this standard practice.

Nacchio also moved for a new trial based on newly discovered evidence. Nacchio's attorneys claimed that the SEC deposition of ex-Qwest CFO Robin Szeliga revealed that she advised Nacchio of a more limited risk of the company falling short of projections. The Tenth Circuit denied the motion.

Second Circuit Upholds Denial of Madoff Bail

The Second Circuit affirmed Southern District of New York Judge Chin's decision to deny Bernard Madoff bail pending his sentencing. United States v. Madoff, No. 09-1025-cr, slip op. at 4 (2d Cir. Mar. 20, 2009). On March 12, Madoff pleaded guilty to 11 felony fraud counts in front of Judge Chin. As a part of that plea, he admitted to running a Ponzi scheme for more than a decade until his arrest in December 2008, explaining that he started his scheme in the early 1990s, during the recession, which hurt securities investments. He developed what he termed a “split strike conversion strategy” through which he would invest in the Standard & Poor's 100 index, taking advantage of the market through the timing of his investments, and hedging these investments by buying and selling option contracts related to these investments. He admitted that he never actually made these investments, lying to investors and the SEC to conceal his fraud.

After his plea, the district court determined that, because Madoff is 70 years old, faces 150 years in jail, had the motive to flee, and possessed the means to do so, he posed a flight risk ' the ground for denial of bail pending sentencing.

Once convicted, Madoff had the burden of proving that he was not a flight risk. The Second Circuit panel determined that the District Court did not err in identifying both Madoff's incentive and ability to flee justice. Despite the statutory requirement that the defendant present “clear and convincing evidence that the person is not likely to flee,” 18 U.S.C.A. ' 3143(a), Madoff had argued that analysis of his incentive to flee was improper. Although Madoff claimed that all his assets were “inaccessible,” the panel found that he not only had a foreign residence, but could readily have funds kept abroad. Madoff's sentencing is set for June 16, 2009.