Nacchio was the CEO of Qwest, a publicly held telecommunications company, when it completed a merger with U.S. West. After the merger, Nacchio made public statements concerning the future of the company and predicted that earnings would increase steadily. During the time of the statements, Nacchio was being told by his financial analysts that the revenue targets were too high and that it was likely that Qwest would have a significant shortfall in meeting the publicly announced targets. Other officers of the company informed Nacchio that the market for their main product was “drying up.” Despite this information and urging from his executive team to disclose the problems, Nacchio held conference calls with investors and claimed the company was “still confirming”

the original predictions. While Nacchio was giving assurances to investors touting the success of Qwest, he was disposing of over 1 million shares of his own stock. When conditions at Qwest worsened, the stock collapsed. The SEC charged Nacchio with insider trading. Nacchio defended on the basis that the information he received was not material but information he received in the normal course of operations.

CASE QUESTIONS

1. Who prevails in this case and why?

2. Are all of the elements of insider trading met here?