UPDATE 4-Court overturns Nacchio insider trading conviction

(Adds quote from Nacchio's attorney)

By Robert Boczkiewicz and Dan Whitcomb

DENVER/LOS ANGELES, March 17 (Reuters) - A U.S. appeals court on Monday threw out the insider trading conviction of former Qwest Communications International Inc (Q.N) Chief Executive Joseph Nacchio, ordering a new trial in front of a different judge.

The court criticized U.S. District Judge Edward Nottingham, who presided over Nacchio's trial, for barring testimony from an expert witness the defense considered key to its case.

Nacchio's conviction on 19 counts of insider trading had been hailed as a major victory in the government's attempt to crack down on Wall Street titans who profited as their companies self-destructed.

The 10th U.S. Circuit Court of Appeals in Denver voted 2-1 to overturn the conviction against Nacchio, who was found guilty by a federal court jury in April of 2007, and said the retrial should be in front of a different judge.

Nacchio was convicted on 19 of the 42 counts against him after prosecutors said he sold $101 million of Qwest shares on the warnings of company insiders that the phone carrier could not meet its financial targets.

Nottingham sentenced Nacchio to a six-year prison term, fined him $19 million and ordered him to forfeit $52 million. He has remained free on $2 million bail pending the appeal.

In reversing the guilty verdicts, 10th Circuit court said Nacchio's defense had relied heavily on the proposed testimony of Daniel Fischel, a finance and law professor who was prepared to present a study of Nacchio's trading patterns that showed they were inconsistent with insider trading.

The study also found that Qwest's share price was not significantly hurt when the information was made public.

NACCHIO'S LAWYER SAYS 'IMPORTANT VICTORY'

"The improper exclusion of Professor Fischel's testimony prejudiced Mr. Nacchio's defense, so we must reverse his conviction," U.S. Circuit Judge Michael McConnell wrote in the court's 74-page ruling. "However, because the evidence the government presented was sufficient, the government may try him again a second time."

In dissenting from the majority opinion, U.S. Circuit Judge Jerome Holmes said he would let Nacchio's conviction stand because the defense was "on clear notice" that they had to make a case for Fischel's testimony and failed to do so.

The court majority said a new judge should preside over a retrial because "it would be unreasonably difficult to expect this judge to retry the case with a fresh mind."

Nacchio's lead defense attorney, Maureen Mahoney, called the ruling an "important victory" and said the appeals court found he did not receive a fair trial.

"If the government decides to retry the case, we expect him to be acquitted," Mahoney said. "The additional evidence will establish beyond any doubt that Mr. Nacchio did not commit a crime."