The Nacchio reversal

It was basically about the exclusion of Dan Fischel's expert testimony. Ellen Podgor's discussion is here and here. Here's an excerpt from the opinion about the excluded testimony:

Professor Fischel’s testimony was to include a discussion of the economic incentives that inside information would have given Mr. Nacchio, the statistical significance of the differences in his trading patterns, and the likelihood that economic diversification better explained the challenged sales than inside information. The judge concluded that all of these things were “within the common knowledge of the jury” and that “[t]he jury simply d[id]n’t need this socalled expert witness to testify that diversification is an issue in this case.” This misunderstands the nature of economic expertise. An economic expert is permitted not only to tell the jury that an economic concept “is an issue” but to analyze the concept and offer informed opinions. * * *

We are persuaded that the exclusion of Professor Fischel was not inconsequential under any standard. The theory of Mr. Nacchio’s defense was that the stock price was not affected by his disclosures, that his conduct had an innocent explanation, and that a reasonable investor would not have found his inside information very important. Professor Fischel’s testimony, as described in the disclosure, could have addressed each of these issues, and if credited by the jury, might have changed the jury’s mind. * * *

While economic analysis sometimes asks jurors to “abandon their own common sense,” that is not a reason to deem expert testimony inadmissible. Armchair economics is not the way to decide complex securities cases.

I have been arguing for years that one of the many problems with criminalizing conduct like Nacchio's is that judges and juries do not understand how firms operate, and substitute popular misconceptions. It's worse than "armchair economics" -- it's anti-economics. Most people get their information about corporate executives from newspapers, films, and other media sources that portray corporate executives as selfish, greedy, and irresponsible. Resentment of the rich and powerful inclines them to accept these judgment. 

[Indeed, it's not just judges and juries, but prosecutors. Check out this blog post about where Enron prosecutor John Hueston got his game plan.]

The Nacchio defense was trying to leaven these prejudices with a little information and the trial judge blocked it. A new trial is the least Nacchio is entitled to.

Update:  Professor B has an interesting report on the trial judge who was reversed.  Apparently he's not high on judicial temperment, to say the least, which could explain his precipitous decision to exclude expert testimony.  It only indirectly bears on the case, but serves as a general reminder that the process of judging is no more perfect than that of running a business.