Thursday, August 31, 2006
An article in the Washington Post (here) makes the provocative point that lawyers have largely avoided the fallout from the recent rounds of corporate and accounting scandals, asserting that "lawyers serving fraud-ridden companies have emerged relatively unscathed." The article contrasts lawyers with the two large accounting firms, Arthur Andersen and KPMG, that have been involved in criminal cases, with Andersen forced out of business even though the conviction was later reversed by the Supreme Court. That may not be the best comparison, however. Andersen was prosecuted for obstruction of justice for shredding documents, not for its audit of Enron, and KPMG's deferred prosecution agreement involved the firm's direct work selling tax shelters to clients, a product much like any other, and not for its professional advisory role. The Milberg Weiss case is somewhat analogous to these accounting firm prosecutions, in that the subject of that prosecution is not work on behalf of clients but how the firm went about doing its business.
The recent options-timing cases may well put lawyers squarely in the sights of prosecutors, particularly in-house counsel at the companies involved in the questionable -- although perhaps not necessarily illegal -- transactions. William Sorin, former general counsel at Comverse Technologies, was charged along with two other executives for his role in the options back-dating, and the charges recite how he used his position to facilitate the awards and make them look legal. McAfee Inc. fired its general counsel, Kent Roberts, because of his involvement in an instance of options back-dating, and federal prosecutors subpoenaed the company for information related to his termination. At some companies being investigated, outside law firms drafted the compensation policies while partners at the firms served as directors of the corporations, even being involved in the now-scrutinized option grants. These lawyers are sure to be questioned by civil and criminal authorities, and are likely targets of those investigations.
Although lawyers were not caught up in the criminal prosecutions generated by some of the spectacular corporate collapses of recent years, the options-timing investigations will put the acts of legal counsel under a microscope. It will not be surprising to see more than a few lawyers involved as defendants in the various cases in the future. (ph)