1:30 pm. I’m in the front row of the courtroom at the Tenth Circuit Court of Appeals, behind the defense table waiting for oral arguments to begin in Joe Nacchio’s appeal of his insider trading conviction. The spectator side of the courtroom is already full. There are still a few media seats left. Joe Nacchio is not here, just a bevy of his attorneys including Maureen Mahoney and Herb Stern. The prosecutors aren’t here yet either. Just coincidentally, I ran into Judge Nottingham getting a bit to eat a few minutes ago across the street. I’ve never known a trial judge to attend oral arguments of a case he or she presided over, so I’m pretty confident in saying he won’t be here either. I’ll be live-blogging the oral arguments, typing the statements of counsel and judges as best and fast as I can. Please understand this is not a transcript and oftentimes my own shorthand. Typos will be plentiful, and corrected later. Arguments begin at 2:00 pm MT. Each side should get 15 minutes to argue. I’ll update frequently and keep it going for as long as my laptop batteries and internet connection hold up. 1:35 pm. The prosecutors are now here. One of Nacchio’s trial lawyers, John Richiliano, is seated two rows in back of me, beside some other notable Denver criminal defense attorneys. It’s very quiet in the room. By the way, if you’ve never been in the Tenth Circuit courthouse, it’s beautiful, a perfect restoration. If traveling to Denver, it’s definitely worth a visit.

1:40 pm. For news coverage, check out the Rocky Mountain News and Denver Post. AUSA Cliff Stricklin came over to the defense table and warmly greeted Herb Stern and another defense counsel. It was like watching old friends. Clearly, there’s no personal animosity there. 1:50 pm: The noise level is rising. A clerk puts some paper in front of each judge’s seats. Announcements: No pictures, no recording allowed. Arguments will start on time. No going in and out. It’s standing room only in the back, and the clerk reminds everyone there is an overflow courtroom. 2:00 We begin. Maureen Mahoney Materiality: She cites cases for the proposition that the standard in corporate trading cases requires an acquittal for Nacchio. The Gov’t argues in its brief that the cases she cites are false statement cases not insider trading and distinguishable. She disagrees. Section 11 isn’t limited to false statements. This is a classic materiality issue, according to a first circuit case. She cites the Shaw and Glassman cases. Says courts are reluctant to impose fraud by hindsight. Judge: Wasn’t the question whether they corrected their past projections? She answers no. Qwest (and Szeliga) was reaffirming guidance at the same time that Nacchio stopped trading. No one ever went to Nacchio and asked him to reduce the guidance until August. Judge: In January, Szeliga gave warnings. Mahoney disagrees. Well, says judge, but what about what she said on redirect as opposed to on cross-examination? The Judge points out again that Szeliga corrected herself on redirect. If there are inconsistencies in her testimony, and jury is entitled to view testimony most favorable to prosecution, is there a problem. They discuss whether the numbers really showed a billion dollar shortfall. She won’t concede a billion dollar shortfall is material. She says “I don’t think so.” We don’t know what the jury found because there were no instructions on the standard. Judge: The instruction given may be vague, but it’s not incorrect. Mahoney: When the court tells the jury the standard is no different with respect to forward looking information, it’s misleading. Judge: It’s not clear it’s just forward looking information. She says Nacchio only needed a small amount to make the numbers. These were economic risks which other courts hold the market is aware of . Nacchio told them there were economic risks. She reserves her additonal time. Materiality is the only issue she discussed: Government: Steven ? for the U.S. is arguing. Says Mahoney just said there’s a difference between internal and external targets. Szeliga said she met with Nachhio and made risks clear. Judge: But this $900 million was known. Doesn’t this show that things didn’t get any worse? The bad news was fully known in Sept. Steven X says the public didn’t know that. It was misleading as to April. Nacchio knew that recurring revenue had to take off by April and it hadn’t done so. Judge: But they were on target in April. Another judge: Didn’t the same thing happen the year before? Why wouldn’t it happen again? Steven X: This is different because no one is going to come and buy up IRU’s. First Judge: What about the global market? Judge: Says he can’t find any support for one of the Government’s assertions. Second Judge asks Government: But is it material? First Judge: I’m interested in what the jury was told. He mentions to Government’s closing argument. Was it the $900 or $300 million? First Judge: If the jury convicted on $900 million, and we were to conclude the $300 million figure was correct, we couldn’t conclude the jury found the $900 million material. Steven X: This case is about the quality of the numbers Qwest is relying on. Over-reliance on IRUs is a second issue. Judge: You don’t want to talk about $300 million. Do you think that $300 million of a $21 billion(?) company is material? Second Judge: Assuming your view, doesn’t it make it impossible for a corporation to sell stock? Didn’t Nacchio act on advice of his financial people? AUSA says Szeliga was concerned from the get-go. Judge 2: Your suggestion is that everyone was afraid of Nacchio and afraid to tell him the truth. Can you hold him criminally liable because of that? Asks the AUSA, What rule would you like to come out in this case for the future? AUSA: None. This is a unique case. Judge: Executives are entitled to some guidance. Judge No. 2: What information did he have? As I read it, no one would tell him anything. And you’re saying he should have known. AUSA: points to Mohebbe memo and Nacchio tape. Times up, AUSA says he’ll sit down but the first Judge asks about Rule 16 disclosure statements. This has to do the expert witness issue. They discuss lack of Daubert hearing. All three judges are animated and question the AUSA on this. There was no Daubert hearing in any sense of the word. The Gov’t tried to block Daubert hearing. The defense was not untimely in its disclosure. There was never an opportunity for defense to put on any evidence. How could there be when the trial judge shut him down? Judge can’t be a guesser. Briefs aren’t enough. The Judges read some of Nottingham’s comments, using his terse inflection. The second judge asks the Government: Do you want to re-write Rule 16? The judges are pretty rough on the prosecutor on this issue. Maureen Mahoney is now back up: She addresses the Daubert issue. There should have been a hearing. A judge tells her to take as much time as she wants since they gave her opponent extra time. She says there was plenty of time to hold a Daubert hearing because the trial was weeks ahead of schedule. Fischel was going to testify about materiality and intent, the core issues of the case. If the jury believed Fischel, they would have acquitted. First Judge asks her to address an issue about the Government’s witnesses on materiality and why Nacchio should have been able to put on rebuttal witnesses when they were able to cross examine the Govt’s witnesses. She says the witnesses went beyond the scope of the questions in their answers. Third judge asks another question about Fischel and his methodology. She says there was ample information provided about Fischel’s testimony for them to prepare for it. Judge three now asks about materiality and reglulatory safe harbors. According to the Indictment, this is about the use of projections to mislead investors because he didn’t disclose information they needed to make decisions. What was he supposed to disclose? For the disclosure to be accurate, what would it take? Mahoney: Nacchio had said as of April we’ve identified $900 million in possibilities. We’d need another $43 million. It’s just as wrong to over-estimate as under-estimate. She says there isn’t a single case where information this remote in time or involving such small risks was held material. She says the Government is asking the Court to apply a more stringent standard than is proper with respect to misstating revenues. The SEC says a 5 percent mistake is generally not material. Even a higher percentage may not be material if it involves estimating. Here we have a 4% mistake. End of oral arguments. Conclusion: This is no slam dunk for the Government, particularly on whether Judge Nottingham erred in excluding expert defense witness Fischel without a Daubert hearing and perhaps on the materiality instruction. The judges were definitely harder on the Government than on Mahoney. You can’t predict the outcome of an appeal based on the questions. Still, two of the judges seemed more favorable to the defense than the government on the materiality issue and all three had problems with the exclusion of the defense expert witness without a Daubert hearing. If I were Nacchio, I’d be cautiously optimistic. If I were the Government, I’d be concerned. But no one has a crystal ball and everyone will have to wait until the opinion is rendered.