Bear Stearns Isn't the Only One to Get a Bailout

In a week marked by bailouts and turmoil in the markets, former Qwest (NYSE: Q) CEO Joe Nacchio, convicted of insider trading 11 months ago yet free on bond ever since, has won his appeal.

Hello, Joe. Goodbye, jail. (For now, at least.)

On Monday, a three-judge panel from the Denver's 10th Circuit Court of Appeals ruled that presiding judge Edward Nottingham erred in excluding the expert testimony of defense witness Daniel Fischel, a former dean of the University of Chicago Law School.

The error means that Nacchio will have another trial, if the Feds want to pursue one. So far, there's only speculation about that, but if there's an argument in favor, it can be found in the summary of ruling. Quoting:

We agree that the improper exclusion of his expert witness merits a new trial, but we conclude that the evidence before the district court was sufficient for the government to try him again without violating the Double Jeopardy Clause.

This means that, barring the error and on the basis of available evidence, Nacchio's conviction could be justified. A new trial is necessary to know for sure.

So that's the good news for Qwest retirees still seeking vindication. The bad news? Qwest, already on the hook for millions in legal fees because of bylaws that protect corporate officers during litigation, could face paying millions more.

Qwest isn't the only one. Bear Stearns (NYSE: BSC) just approved a similar arrangement for its employees. Verizon's (NYSE: VZ) bylaws also provide some protection for officers and their legal representatives.

And finally, the weird news: By my read of the court filing, Fischel was prepared to argue that Nacchio was justified in ignoring internal pleas for greater disclosure and better accounting, and that these management disagreements were immaterial to shareholders. Without material inside knowledge to act on as he was selling, there could have been no insider trading, the thinking goes.

Well, I'm not a lawyer, and I won't try to argue the legal merits. But as a human being and an investor, that reasoning is worse than illogical. It's insulting.

What investor would not have wanted to know that insiders were pressing Nacchio to come clean about problems with booking one-time sales as recurring revenue? What investor would not have wanted to know key executives were warning Nacchio that Qwest would miss published earnings targets as he was selling tens of millions in stock?

Only a moron wouldn't. And, with apologies to Fischel, only a moron would argue to the contrary.