Amicus Curiae Brief — Nacchio v. United States (No. 08-1172)

OC

No. 08-1172

FILED

APR / § 2009

os

IN THE

SESS ras_ERK

SUPREWME COURT, U.S.

Supreme Court of the United States

JOSEPH P. NACCHIO ,

Vv.

Petitioner,

UNITED STATE OF AMERICA,

Respondent.

On Petition for a Writ of Certiorari

To the United States Court of Appeals

For the Tenth Circuit

BRIEF OF WASHINGTON LEGAL FOUNDATION

AS AMICUS CURIAE IN SUPPORT OF PETITIONER

Daniel J. Popeo

Richard A. Samp

Washington Legal Foundation

2009 Massachusetts Ave., NW

Washington, DC 20036

(202) 588-0302

Michael L. Kichline

DECHERT LLP

2929 Arch Street

Philadephia, PA 19104

(215) 994-4000

Andrew J. Levander

(Counsel of Record)

David S. Hoffner

Jason O. Billy

David P. Staubitz

DECHERT LLP

30 Rockefeller Plaza

New York, NY 10012

(212) 698-3500

WILSON-EPES PRINTING CO., INC. — (202) 789-0096 -— WASHINGTON, D.C. 20001

QUESTION PRESENTED

Amicus curiae addresses the following issue only:

Whether the defendant is entitled to acquittal or

a new trial because the Tenth Circuit, in conflict with

the standards applied in other circuits, erred by

upholding the jury instructions bearing on the

materiality of the type of information at issue, and by

holding that there was sufficient evidence that the

defendant failed to disclose material information and

knew it.

TABLE OF CONTENTS

Page

QUESTION PRESENTED ..................... i

TABLE OF AUTHORITIES onc ccensccvvusevess iv

INTEREST OF AMICUS CURIAE .............. 1

REASONS FOR GRANTING THE PETITION .... 2 |

I. REVIEW IS WARRANTED BECAUSE

THE DISTRICT COURT’S INSTRUC-

TIONS AS TO MATERIALITY FAILED

TO PROVIDE THE JURY WITH

ADEQUATE INSTRUCTION AS TO

HOW TO DRAW A LINE BETWEEN

“MATERIAL” AND “IMMATERIAL”

“SOFT” INFORMATION ............... 4

II. REVIEW IS WARRANTED BECAUSE

THE DECISION BELOW UNDERMINES

THE IMPORTANT PROTECTIONS

AFFORDED TO INTERNAL “SOFT”

SNE NPEE UES poche edvistevssaeurexs 10

CREE. fi soo ¥ ens eae eae e ieee 18

iv

TABLE OF AUTHORITIES

Page(s)

Cases:

Basic Inc. v. Levinson,

ge rr 6, 10,

Bell v. United States,

ee gw sw eivde awe Mb av ecee es

In re Donald J. Trump Casino Sec. Litig,

7 F.3d 357 (3d Cir. 1993),

cert. denied, 510 U.S. 1178 (1994) ............

Dura Pharms., Inc. v. Broudo,

OG Te) hiv ccc tcc eer teen vens

Garcia v. Cordova,

930 F.2d 826 (10th Cir. 1991) .................

Gasner v. Board of Supervisors,

103 F.3d 351 (4th Cir. 1996) .................

Grossman. v. Novell, Inc.,

120 F.3d 1113 (10th Cir. 1997) ..........2005.

Harden v. Raffensperger, Hughes & Co.,

65 F.3d 1392 (7th Cir. 1995) .................

I. Meyer Pincus & Assoc., v. Oppenheimer & Co.,

Oe ee Fe i, SUPE) gow vce ccc ec cce

Merrill Lynch, Pierce, Fenner & Smith, Inc.

wm. Dee, GAT WL TEC) nw wc ce cece vce

Polin v. Conductron Corp.,

552 F.2d 797 (8th Cir. 1977),

cert. denied, 434 U.S. 857 (1977) .............

Romani v. Shearson Lehman Hutton,

Sam Foe Ore Chee Gar. TUB)) .... cc cece cnee

Rubinstein v. Collins,

20 F.a0 160 (Gth Cir. 1904) ...............-..

Saltzberg v. TM Sterling/Austin Assocs. ,

45 F.3d 399 (lith Cir. 1995) ...............-.

Sinay v. Lamson & Sessions Co.,

948 F.2d 1037 (6th Cir. 1991) ................ 14

Stoneridge Investment Partners, LLC

v. Scientific-Atlanta, Inc.,

Re ee I ok oe ees vce uo eh oleee ees 1

Tellabs, Inc. v. Makor Issues & Rights, Ltd.,

pe Be SF 3 a 1

TSC Industries, Inc. v. Northway, Inc.,

Rs | a 6, 10

Wielgos v. Commonwealth Edison Co.,

892 F.2d 509 (7th Cir. 1989) ........... 15, 16, 17

In re Worlds of Wonder Sec. Litig.,

35 F.3d 1407 (9th Cir. 1994),

cert. denied, 516 U.S. 868 (1995) ............. 14

In re XM Satellite Radio Holdings Sec. Litig.,

479 F. Supp. 2d 165 (D.D.C. 2007) ............ 14

Statutes And Rules:

Private Securities Litigation Reform Act,

BO WA. © PPO BOO) cnc ccs weaccceseees 13

Supreme Court Mule 37.6 .... 0. cece ccsvess 1

Miscellaneous:

John C. Burton, Chief Accountant, SEC

at the Northwestern University Conference

on Public Reporting of Corporate Financial

Forecasts, Forecasts: A Changing View From

the Securities and Exchange Commission

(Apr. 2, 1973), available at http://www.sec.gov/

News/speech/1973/040273burton.pdf.......... 12

Eleventh Circuit Pattern Jury

Instructions (Civil Cases) (2005) ..............

Joan MacLeod Heminway, Materiality

Guidance in the Context of Insider:

Trading: A Call For Action,

52 Am. U. L. Rev. 1131 (2003) ...............

Bruce A. Hiler, The SEC and the Courts’

Approach to Disclosure of Earnings

Projections, Asset Appraisals, and Other

Soft Information: Old Problems, Changing

Views, 46 Md. L. Rev. 1114 (1987) .............

Donald C. Langevoort & G. Mitu Gulati,

The Muddled Duty to Disclose Under

Rule 10b-5, 57 Vand. L. Rev. 1639 (2004) .......

James Maloney, Strict Standing Require-

ment For Securities Fraud Suits Upheld

(WLF Counsel’s Advisory, June 3, 2005) .......

Modern Federal Jury Instructions —

Pattern Jury Instructions (Civil),

Ninth Circuit (Matthew Bender ed. 2006).......

Lyle Roberts & Paul Chalmers, Lower

Courts Will Determine Impact Of Supreme

Court’s Securities Fraud Suit Ruling

(WLF Legal Backgrounder, May 20, 2005) ......

Safe Harbor For Forward-Looking

Statements, Securities Act Release

No. 7101, Exchange Act Release

No. 34831, Investment Company Act

Release No. 20613, 59 Fed. Reg. 52723

le SE EY 655 ee eae bs oe eee 8

Securities Litigation Abuses: Hearing

Before the Subcomm. on Securities

of the S. Comm. on Banking, Housing

and Urban Affairs (Oct. 29, 1997)

(testimony of Thomas E. O’Hara, Chairman,

National Association of Investors, Corpor-

ation) available at 1997 WL 683748 ........

S. Rep. No. 104-98 (1995) as reprinted

ep Beep kekee B.A, Sa

Statement by the Commission on the

Disclosure of Projections of Future

Performance, Securities Act Release

No. 53862, Exchange Act Release No. 9984,

38 Fed. Reg. 7220 (Feb. 2,1973) ..........

Page(s)

BRIEF OF WASHINGTON LEGAL FOUNDATION

AS AMICUS CURIAE IN SUPPORT OF PETITIONERS

INTEREST OF AMICUS CURIAE

The Washington Legal Foundation (WLF) is a

nonprofit public interest law and policy center based in

Washington, D.C., with supporters in all 50 States.’

WLF devotes a substantial portion of its resources to

defending and promoting free enterprise, individual

rights, business civil liberties, and a limited and

accountable government. To that end, the WLF has

frequently appeared before this Court and other federal

courts in numerous cases that raise these issues. In

particular, WLF has participated as amicus curiae in

cases about the proper scope of securities law, scienter,

and mens rea. See, e.g., Stoneridge Inv. Partners, LLC

v. Scientific-Atlanta, Inc., 128 S. Ct. 761 (2008); Tellabs,

Inc. v. Makor Issues & Rights, Ltd., 127 S. Ct. 2499

(2007); Merrill Lynch, Pierce, Fenner & Smith, Inc. v.

Dabit, 547 U.S. 71 (2006); Dura Pharms., Inc. v. Broudo,

544 U.S. 336 (2005).

In addition, WLF publishes policy papers that

oppose abusive securities class action cases that are

detrimental to the public interest. See, e.g., James

Maloney, Strict Standing Requirement For Securities

Fraud Suits Upheld (WLF Counsel’s Advisory, June 3,

' Pursuant to Supreme Court Rule 37.6, amicus curiae

states that no counsel for a party authored this brief in whole or in

part; and that no person or entity, other than amicus and its

counsel, made a monetary contribution intended to fund the

preparation and submission of this brief. More than ten days prior

to the due date, counsel for aynicus provided counsel for Respondent

with notice of intent to file.

2

2005); Lyle Roberts & Paul Chalmers, Lower Courts

Will Determine Impact Of Supreme Court’s Securities

Fraud Suit Ruling (WLF Legal Backgrounder, May 20,

2005).

WLF submits that the issues presented in this

case are of the utmost public interest and importance in

the area of securities law. Petitioner Joseph Nacchio

(“Nacchio”) was convicted of insider trading based on an

instruction as to the essential element of materiality

that improperly deprived the jury of any guidance as to

how to perform the delicate assessment of determining

the materiality of internal “soft” information.

Accordingly, the Court should grant Nacchio’s petition

for a writ of certiorari (the “Petition” or “Pet.”)

WLF has no direct financial interest in the

outcome of this case. It is filing.this amicus brief with

the consent of all parties. The written consents have

been lodged with the Clerk of the Court.

REASONS FOR GRANTING THE PETITION

As noted in the Petition, the prosecution of

Nacchio is the first time that a corporate insider has

ever faced insider trading charges based purely on an

internal debate regarding the accuracy of a prior public

financial projection, Pet. 2. The WLF is troubled by the

conviction of Nacchio for insider trading and believes

that review by this Court is necessary in light of the

district court’s erroneous and highly prejudicial jury

instructions defining “materiality” based on the

possession of “soft” information. If a conviction based

on such jury instructions is allowed to stand, the door

will likely be opened to the prosecution, both civilly and

3

criminally, of securities fraud claims any time there is

trading while in the possession of the merest ephemera

of “soft” information that ultimately turns out to have

been a harbinger of negative results.

Such a precedent would potentially criminalize

nearly all securities trading by insiders while in the

possession of nonpublic soft information and contribute

to a climate of fear inhibiting the exchange of

information as to future financial trends and

performance, a dialogue that is essential to the proper

functioning of both corporations and the market in

general. In addition, if the district court’s jury

instructions on materiality are allowed to pass muster,

companies will be severely limited in their ability to

allow employees to purchase or sell the corporation’s

securities. “Blackout periods” will become the norm

rather than the exception and opportunities for

employees to diversify their investment portfolios by

selling stock received through grants or option exercises

will be dramatically reduced, thereby harming the

ability of public companies to recruit and retain

employees.

Indeed, in this case, Nacchio was convicted of

insider trading based on jury instructions as to

“materiality” that ceded to the jury full and unfettered

discretion to find “materiality” on the basis of even the

most inchoate and speculative soft information. Review

is warranted because, at a minimum, the instructions

should have given the jury far more guidance as to how

to make the very difficult and nuanced determination as

to when “soft” information is sufficiently certain and

definite that it may be deemed “material.”

4

The charges against Nacchio were based entirely

on the Government’s allegation that Nacchio had

received new internal information that should have led

him to realize that prior publicly issued financial

projections were likely to be inaccurate. By tying the

allegedly material new “soft” information to the earlier

public projections by Qwest Communications

International, Inc. (the “Company”), Nacchio’s proposed

instructions with respect to materiality would have

provided the jury with the proper context to analyze the

charges in this case. As the defense sought, the jury

should have been instructed that the new soft

information was “material” only if it was so certain that

it caused the earlier publicly disclosed projection to no

longer have a “reasonable basis.” At a minimum, the

district court should at least have provided the jury with

the materiality instruction proposed by the

Government, which was uncontroversial but

nonetheless rejected by the district court in favor of an

instruction that provided even less guidance. Such

errors effectively deprived Nacchio of the ability to

argue that the soft information at issue was not certain

enough and not substantial enough to constitute

materia! information.

I. REVIEW IS WARRANTED BECAUSE THE

DISTRICT COURT’S INSTRUCTIONS AS

TO MATERIALITY FAILED TO PROVIDE

THE JURY WITH ADEQUATE

INSTRUCTION AS TO HOW TO DRAW A

LINE BETWEEN “MATERIAL” AND

“IMMATERIAL” “SOFT” INFORMATION

The linchpin of the prosecution’s theory of the

5

case was that, in early 2001, Nacchio came into

possession of information that led him to conclude that

the Company’s “publicly stated financial targets” issued

in September 2000 were risky and “aggressive.”

Petitioner’s Appendix (“Pet. App.”) 204a-05a. Notably,

the prosecution did not argue that this new information

would have been material in the absence of the public

projections. Nonetheless, the district court’s proffered

jury instruction omitted any mention whatsoever of the

public projection and instead invited the jury to find

materiality as to the new “soft” information’ if it simply

concluded that “a reasonable investor would consider it

important in deciding to act or not to act with respect to

the securities transaction at issue.” Pet. App. 274a.

The only caveat the district court provided the jury was

an admonition that securities fraud “does not cover

minor or meaningless or unimportant matters or

omissions.” Id.

In reaching the determination to provide the jury

with these perfunctory instructions as to materiality,

the district court rejected the instructions proposed by

* The Tenth Circuit has defined soft information as

“information about a particular issuer or its securities that

inherently involves some subjective analysis or extrapolation, such

as projections, estimates, opinions, motives, or intentions.” Garcia

v. Cordova, 930 F.2d 826, 830 (10th Cir. 1991) (quoting Bruce A.

Hiler, The SEC and the Courts’ Approach to Disclosure of Earnings

Projections, Asset Appraisals, and Other Soft Information: Old

Problems, Changing Views, 46 Md. L. Rev. 1114, 1116 (1987)).

“Soft information contrasts with hard information which is

typically historical information or other factual information that is

objectively verifiable and subject to disclosure if material to the

relevant transaction.” Garcia, 930 F.2d at 830 (internal citation

omitted).

6

the defense that would have required that, in order to be

“material,” the jury determine that the new information

rendered the earlier public disclosure without a

“reasonable basis” and that the materiality of the new

information be viewed in light of the cautionary

language accompanying the prior public disclosure. Pet.

App. 134a-35a, 137a. Notably, the district court also

spurned even the Government’s far from controversial

proposed instruction. Pet. App. 272a. Although it failed

to tie the materiality of the new soft information to the

earlier public projection, the prosecution’s proposed

instruction at least delineated materiality in terms of

this Court’s teachings in Basic Inc. v. Levinson, 485 U.S.

224, 238 (1988), and T'SC Industries, Inc. v. Northway,

Inc., 426 U.S. 438, 449 (1976), by directing the jury that,

in order to find materiality, it must be “substantially

likely that a reasonable investor would have viewed [the

information] as significantly altering the total mix of

information made available concerning the company.”

Pet. App. 338a-40a.°

Review is warranted because even in civil

securities fraud cases involving projections, juries are

normally afforded far more guidance than the district

court provided here in a criminal case with respect to

“materiality.” Such guidance is necessary to mitigate

the risk that juries will wrongly impose liability on the

° The Government’s Proposed Instruction No. 12 would

also have instructed the jury that “[i]n evaluating whether forecasts

and forward-looking information is material, you should evaluate

the importance of the information to a reasonable investor, such as

the probability that the future events will or will not occur and the

anticipated magnitude of the events in light of the totality of

company activity.” Pet. App. 339a.

7

basis of hindsight. See, eg., Modern Federal Jury

Instructions — Pattern Jury Instructions (Civil), Ninth

Circuit 1 21.2 cmt. (Matthew Bender ed. 2006)

(materiality instruction “should be adjusted for cases

involving ... statements of reasons, opinions or beliefs”

and “when the alleged fraud concerns certain forward-

looking statements the jury may be compelled to

examine whether the statement falls within the safe

harbor and therefore does not qualify as a fraudulent

statement under the Act”); Eleventh Circuit Pattern

Jury Instructions (Civil Cases), Instruction 4.2 (2005)

(“If, at the time the predictions, expressions of opinion

or projections were made, and the speaker actually

believed them or there was a reasonable basis for

making them, then the statements are not materially

misleading statements of fact.”).

Yet, here, in a criminal context where the

defendant’s liberty was at stake, the district court

rejected even these basic sefeguards. Instead, the

district court offered an instruction to the jury that was

devoid of any useful guidance as to how to assess the

materiality of the new soft information in the context of

the prior public pronouncement. Such circumstances

make review especially warranted in this case because

the prosecution’s case explicitly hinged on the public

projection that the Government claimed was, in light of

the new information, no longer accurate. Given the

Government’s theory of the case, as well as the unique

issues presented by any criminal prosecution for insider

trading premised on the possession of allegedly material

“soft” information, a more detailed instruction

providing the jury with more guidance was clearly

required.

8

Indeed, even though the Tenth Circuit declined to

reverse Nacchio’s conviction on the basis of the jury

instructions as to materiality, it nonetheless recognized

the troublesome nature of the materiality analysis and

the problems inherent in advising jurors as to how to

tackle such a nuanced determination. In fact, the Panel

acknowledged that “the fact-specific nature of the

materiality determination [makes] it [] important to

give a jury enough guidance to sort out material

information from noise” and conceded that “[iJt is

difficult for untrained jurors to judge ex post what would

have been important to reasonable investors ex ante.”

Pet. App. 132a.

Moreover, the Panel got to the very heart of what

WLF believes is the root problem with the jury

instructions as to materiality when it recited the obvious

truism that “[a]fter the fact, whenever anybody has

made money trading stock it is easy to say that one

would have wanted to knuw whatever the trader knew.”

Pet. App. 132a. The Panel’s recognition of how “easy”

it is for a jury to find materiality in hindsight proves the

inadequacy of the instructions here. If the conviction in

this case is allowed to stand, the district court’s open-

ended jury instructions as to materiality will be

endorsed. A criminal conviction should not stand on

such a basis.

Indeed, even the Tenth Circuit panel, in denying

the appeal, felt obliged at least to acknowledge that the

district court’s instructions on “materiality” were “not

particularly informative.” Pet. App. 133a. The

instruction provided the jury with no basis for

understanding how to draw the line between the rare

case of near certain soft information, which indeed may

be material, and the routine estimates and

prognostications that companies circulate internally

that are not. Absent more concrete guidance, the

Nacchio jury was free to determine materiality

improperly without any reference to the “total mix” of

information and the underlying disclosure that was at

the crux of the Government’s case and without any

sensitivity to the fact that, although an investor might,

out of context, consider forecasts to be important, the

law recognizes that such information may nevertheless

still be speculative and without sufficient certainty to

make it “material.”

As detailed by Nacchio in his Petition, the need

for review by the Court of the jury instructions as to

materiality is further supported by the conflict between

the Tenth Circuit’s decision upholding the jury

instructions in this case and the many Circuits holding

that internal soft information, including internal

projections, is immaterial as a matter of law, except in

relation to prior public forecasts. Pet. 17-24. Without

question, there is confusion among courts as to how to

instruct juries to assess the materiality of internal

projections, and whether and to what extent such

materiality assessment hinges on the substance of a

prior publicly made projection or forecast. See, e.g.,

Donald C. Langevoort & G. Mitu Gulati, The Muddled

Duty to Disclose Under Rule 106-5, 57 Vand. L. Rev.

1639 (2004). This Court’s decision in Basic is a good

starting point for any such analysis, but Basic itself

recognizes that a determination of the materiality of soft

information presents a particularly difficult problem.

Basic, 485 U.S. at 232.

In light of the total lack of guidance provided to

10

the Nacchio jury as to when soft information becomes so

material as to preclude securities trading by a corporate

insider, the conviction of Nacchio violates basic

principles of fairness and the rule of lenity. See Bell v.

United States , 349 U.S. 81, 83 (1955). <A criminal

conviction for insider trading simply cannot be premised

on a materiality instruction that offered the jury

absolutely no guidance and allowed conviction on the

basis of soft information that anyone in hindsight could

simply say one “wanted to know.” Pet. App. 132a.

II. REVIEW IS WARRANTED BECAUSE THE

DECISION BELOW UNDERMINES THE

IMPORTANT PROTECTIONS AFFORDED

TO INTERNAL “SOFT” INFORMATION

The general difficulties inherent in performing

determinations of materiality under this Court’s

standard for materiality, as articulated in Basic, 485

U.S. at 238, and TSC Industries, 426 U.S. at 449, are

well recognized. One commentator has noted:

The facial simplicity of the basic legal standard

governing materiality masks the complexities

encountered by transaction planners, litigants,

the SEC, the U.S. Department of Justice... and

courts in interpreting and applying that

standard. The interpretation and application of

the materiality standard are highly fact-

dependent and do not always produce predictable

or certain planning options or judicial results.

Joan MacLeod Heminway, Materiality Guidance in the

Context of Insider Trading: A Call For Action, 52 Am.

U. L. Rev. 1131, 1138-39 (2003).

11

Such determinations are even more difficult when

the information whose materiality is being assessed is

so-called “soft” information and is, by definition, lacking

absolute certainty and ciarity. Indeed, until 1973, the

United States Securities and Exchange Commission

(SEC) prohibited the inclusion of forward-looking

information in a public disclosure document out of

concern that the dissemination of soft information could

not be adequately gauged by the marketplace.

Statement by the Commission onthe Disclosure of

Projections of Future Performance, Securities Act

Release No. 5362, Exchange Act Release No. 9984, 38

Fed. Reg. 7220 (Feb. 2, 1973).

Over the last 35 years, however, the enactment of

statutory and administrative “safe harbors” and the

judicial adoption of the “bespeaks caution” doctrine

reflect the growing recognition that corporations and

their officers and directors must have the latitude to

make good faith pronouncements of financial estimates

and projections to the market without running the risk

that they will be sued or held liable if, as frequently

happens, such projections turn out to be erroneous. The

Nacchio prosecution and conviction run counter to this

trend of increased protections with respect to securities

claims premised on “soft” information.

Indeed, in the early 1970s, the SEC began to

acknowledge various overriding factors supporting the

release of forward-looking statements: the relevance of

future-oriented data in investment decisions; the

increased reliability and sophistication of corporate

forecasts due to both improved information systems and

increasing use of budgets and forecasts in corporations;

and the need for companies to disclose projections to

12

investors in a nondiscriminatory manner. See John C.

Burton, Chief Accountant, SEC at the Northwestern

University Conference on Public Reporting of Corporate

Financial Forecasts, Forecasts: A Changing View From

the Securities and Exchange Commission (Apr. 2, 1973),

available at http://www.sec.gov/news/speech/1973/

040273burton.pdf.

As aresult of this emerging view of the normative

advantages of allowing forward-looking statements, the

SEC and Congress implemented administrative and

statutory protections with the goal of promoting the

exchange of forward-looking information. In 1979, the

SEC formally adopted a “safe harbor” for the release of

forward-looking statements made with good faith and

with a reasu>able basis, with the goal of “encouraging

the disclosure of projections and other items of forward-

looking information.” In adopting the safe harbor, the

SEC noted that several commentators “urged the

adoption of a safe harbor rule for projections made by

issuers and reviewed by third parties, stating that the

absence of a safe harbor rule might discourage the

dissemination of projections.” Safe Harbor For

Forward-Looking Statements, Securities Act Release

No. 7101, Exchange Act Release No. 34831, Investment

Company Act Release No. 20613, 59 Fed. Reg. 52723

(Oct. 13, 1994).

Since the lifting of the SEC’s prohibition on

forward-looking statements, the public dissemination of

soft information has come to play a critical role in

maintaining and enhancing visibility, pred:"tability, and

uniformity of access to information in the marketplace.

The increasing importance of the public availability of

soft information has been recognized by Congress

13

through the codification of safe harbor protections for

forward-looking statements in the Private Securities

Litigation Reform Act, 15 U.S.C. § 78u-5 (1995), passed

for the primary purpose of reducing the “chill on

voluntary disclosures by issuers.” S. Rep. No. 104-98, at

5 (1995), as reprinted in 1995 U.S.C.C.A.N. 679, 684.

The importance of the availability of soft

information to the overall economy has also been

recognized by the SEC, which has acknowledged that

forward-looking statements “occupL[y] a vital role in the

United States securities markets”:

Investors typically consider management’s

forward-looking information important and

useful in evaluating a company’s economic

prospects and consequently in making their

investment decisions. Analysts and other market

participants report that they view considerations

of management’s own performance projections,

i.e., earnings and revenues, to be critical to their

own forecasts of company’s future performance.

As such, forward-looking information is often

considered a critical component of investment

recommendations made by broker-dealers,

investment advisors and other securities

professionals.

Safe Harbor For Forward-Looking Statements,

Securities Act Release No. 7101, Exchange Act Release

No. 34831, Investment Company Act Release No. 20613,

59 Fed. Reg. 52723 (Oct. 13, 1994). Indeed, “[i]f a

company won’t provide information, investors become

reluctant to invest ... . {and,] [w]ithout investors,

companies wither on the vine. . . [and,] [i]Jn the end, the

14

entire American economy suffers.” Securities Litigation

Abuses: Hearing Before the Subcomm. on Securities of

the S, Comm. on Banking, Housing and Urban Affairs

(Oct. 29, 1997) (testimony of Thomas E. O’Hara,

Chairman, National Association of Investors

Corporation), available at 1997 WL 683748.

Comporting with the expressed public policy of

Congress and the SEC, lower courts have consistently

recognized the need to protect corporate use of soft

information in the form of forward-looking statements

to the market and internally-generated projections.

Every Court of Appeals addressing this issue has

adopted protections such as the “bespeaks caution

doctrine,” which “provides a mechanism by which a

court can rule as a matter of law... that defendants’

forward-looking representations contained enough

cautionary language or risk disclosure to protect the

defendant against claims of securities fraud.” Grossman

v. Novell, Inc., 120 F.3d 1112, 1120 (10th Cir. 1997)

(quoting In re Worlds of Wonder Sec. Litig., 35 F.3d

1407, 1413 (9th Cir. 1994), cert. denied, 516 U.S. 868

(1995)).*

* See also Romani v. Shearson Lehman Hutton, 929 F.2d

875, 879 (1st Cir. 1991); J. Meyer Pincus & Assoc., v. Oppenheimer

& Co., 936 F.2d 759, 763 (2d Cir. 1991); In re Donald J. Trump

Casino Sec. Litig, 7 F.3d 357, 371-73 (3d Cir. 1993), cert. denied,

510 U.S. 1178 (1994); Gasner v. Board of Supervisors, 103 F.3d 351,

358 (4th Cir. 1996); Rubinstein v. Collins, 20 F.3d 160, 167 (5th Cir.

1994); Sinay v. Lamson & Sessions Co., 948 F.2d 1037, 1040 (6th

Cir. 1991); Harden v. Raffensperger, Hughes & Co., 65 F.3d 1392,

1404-06 (7th Cir. 1995); Polin v. Conductron Corp., 552 F.2d 797,

807 n.28 (8th Cir. 1977), cert. denied, 434 U.S. 857 (1977); Saltzberg

v. TM Sterling/Austin Assocs., 45 F.3d 399, 400 (11th Cir. 1995).

Cf. In re XM Satellite Radio Holdings Sec. Litig., 479 F. Supp. 2d

15

In implementing these principles, however, it is

essential that the public dissemination of financial

projections does not lead to the destructive result of

forcing companies to update such disclosures every time

new internal data, information or analysis is received

that might arguably have an impact on such prior public

assessment. The United States Court of Appeals for the

Seventh Circuit was confronted with this very situation

in Wielgos v. Commonwealth Edison Co., 892 F.2d 509

(7th Cir. 1989). In Wielgos, the court made clear the

importance of ensuring that companies have the benefit

of free and unfettered internal discussion and debate as

to business prospects and forecasts without being

compelled constantly to worry that the daily vicissitudes

of business render their prior public statements

inaccurate and preclude the company or its officers from

buying or selling securities. In concluding that a

company’s possession of internal information with

respect to projections of construction costs did not

preclude it from selling its own securities to the market,

the Seventh Circuit stated:

Because firms may withhold even completed

estimates, they may withhold in-house estimates

that are in the process of consideration and

revision. Any other position would mean that

once the annual cycle of estimation begins, a firm

must cease selling stock until it has resolved

internal disputes and is ready with a new

projection. Yet because large firms are eternally

in the process of generating and revising

estimates — they may have large staffs devoted to

165, 177-78 (D.D.C. 2007).

16

nothing else —- a demand for revelation or delay

would be equivalent to a bar on the use of

projections if the firm wants to raise new capital.

Id. at 516 (citing Painter v. Marshall Field & Co., 646

F.2d 271, 291-93 (7th Cir. 1986)).

_ Review by this Court of the Nacchio conviction is

warranted because, as recognized by the Seventh Circuit

in Wielgos, the practical effect of the open-ended jury

instructions here will be that corporate insiders will be

severely restricted from trading in company shares for

fear of prosecution and thereby deprived of the ability to

diversify their assets. Moreover, in an attempt to

alleviate such concerns, corporations may cease issuing

guidance in order, among other things, to enhance the

ability of corporate insiders to purchase or sell stock

without the impediment of constant blackout periods or

the fear of a criminal prosecution based on soft

information that casts doubt on an existing projection.

In order to provide the jury with sufficient

guidance, the Nacchio jury should have been instructed

that to find that the new information that Nacchio

allegedly possessed was “material,” the information had

to be “so certain” that, as a result, the previously

publicly announced forecast no longer had a “reasonable

basis.” At a minimum, the jury should have been

advised, as the Government’s proposed but rejected

instruction acknowledged and as this Court’s decision in

Basic, 485 U.S. at 231-32, mandates, that in order to

find that the soft information at issue was material, it

had to be “substantially likely that a reasonable investor

would have viewed it as significantly altering the total

mix of information made available concerning the

17

company” and that materiality determinations require

a balancing of “probability” and “magnitude.” Pet. App.

338a-40a.

The failure of the district court to instruct the

jury adequately in this regard was reversible error,

which if not rectified by this Court, will accentuate the

already uncertain landscape of corporate obligations

with respect to soft information, severely hamper the

ability of corporate insiders occasionally to diversify

their assets (and thus impair the ability of public

companies to recruit and retain talent) and have a

deleterious impact on the ability of corporations to

engage in the open and uninhibited internal dialogue

that is so essential to the health and future of American

business. Indeed, as Judge Easterbrook stated in

Wielgos, “li]fenterprises cannot make predictions about

themselves, then securities analysts, newspaper

columnists, and charlatans [“whose access. to

information is not as good as the issuer’s”] have

protected turf.” Wielgos, 892 F.2d at 514.

18

CONCLUSION

For all the foregoing reasons, WLF respectfully

requests that the Court grant the petition for a writ of

certiorari.

Respectfully submitted,

Daniel J. Popeo Andrew J. Levander

Richard A. Samp (Counsel of Record)

Washington Legal Found. David S. Hoffner

2009 Mass. Ave., NW Jason O. Billy

Washington, DC 20036 David P. Staubitz

(202) 588-0302 DECHERT LLP

30 Rockefeller Plaza

New York, NY 10012

(212) 698-3500

-and-

Michael L. Kichline

DECHERT LLP

2929 Arch Street

Philadelphia, PA 19104

(215) 994-4000

Counsel for Amicus

Curiae Washington

Legal Foundation

Dated: April 22, 2009