Prosecutors and the SEC work quite vigorously to recover ill-gotten gains from those who have committed securities fraud, with the ultimate goal of compensating investors. A conviction in a criminal case or judgment in civil case brought by the SEC may result in a large number, like the $53.8 million forfeiture judgment in the criminal case and the $92 million civil judgment against Raj Rajaratnam (discussed here), but that is only the first step. A May 3, 2012 Press Release from DOJ provides some insight into this process (and how long it may take) – following a 2007 conviction of Joseph Nacchio, the former CEO of Qwest Communications International Inc., based on events which took place between 1999 and 2002, DOJ announced that it "has returned approximately $44 million to victims of [that] securities fraud scheme."
DOJ prosecuted Mr. Nacchio for acts between 1999 and 2002 when he announced unrealistic revenue projections for Qwest and subsequently caused Qwest to issue false and misleading statements to the public about the company’s financial condition. When those irregularities were discovered, Qwest stock, which had traded as high as $60 per share, fell to approximately $1 per share.
Following a spring 2007 trial, a jury convicted Mr. Nacchio of 19 counts of insider trading on April 19, 2007. Chief Judge Edward W. Nottingham originally sentenced him to 72 months in prison, fined him $19 million, and ordered him to forfeit $52,007,545.47. Mr. Nacchio tendered the forfeiture amount to the custodian of seized property. The $19 million fine was deposited into the registry of the Court in an interest bearing account in August 2007, and was ultimately paid to a fund for victims of crime.
Mr. Nacchio appealed and on March 17, 2008, a three-Judge panel reversed his conviction. However, on February 25, 2009, the Tenth Circuit Court of Appeals issued a new opinion en banc, confirming Mr. Nacchio’s conviction, but vacating the sentence and remanding the case to the District Court for further proceedings. U.S. v. Nacchio, 573 F.3d 1062 (10th Cir. 2009).
Following the Tenth Circuit’s decision, Mr. Nacchio and the Government stipulated to a new forfeiture amount of $44,632,464.38 on January 12, 2010. Then, on June 24, 2010, Mr. Nacchio was resentenced, this time by Judge Marcia S. Krieger, who sentenced him to 70 months in prison and left the fine of $19 million in place. Mr. Nacchio appealed that decision, but agreed to dismiss the appeal in February 2011.
DOJ announced on Thursday that the $44 million in forfeited funds "are being returned to 112,210 victims who incurred losses on Qwest securities purchased during the fraud scheme." The distribution of funds to victims was authorized and overseen by the Department of Justice’s Victim Asset Recovery Program in the Criminal Division’s Asset Forfeiture and Money Laundering Section. Gilardi & Co. LLC, a class action claims Administrator was appointed as Administrator.
Claimants established their eligibility by participating in the private securities class action, In re Qwest Communications International Inc. Sec. Litig., No. 01-cv-1451 (D. Colo.) and/or the US Securities and Exchange Commission Fair Fund, SEC v. Qwest Communications International Inc., No. 04-D-2179 (D. Colo.). The private securities class comprised "all persons or entities that purchased or otherwise acquired [Qwest shares] from May 24, 1999, through July 28, 2002." The eligibility requirements for participation in the distribution were the same as the eligibility requirements for participation in the securities class action. On September 28, 2011 Gilardi & Co. LLC, the appointed Administrator, notified claimants of their eligibility status.
Assistant Attorney General Lanny Breuer stated "we are fulfilling a central objective of the Criminal Division’s Victim Asset Recovery Program and returning those funds to the victims of Mr. Nacchio’s crime."
Those who invested in Qwest will have waited ten years to see this recovery – and, in this case, the defendant, Mr. Nacchio paid the forfeiture amount in 2007. In many cases, the defendant does not willingly pay may a forfeiture award and DOJ is forced to search for and secure assets, which would have made DOJ’s job more difficult and taken longer than the years in Mr. Nacchio’s case.