Thursday, March 1, 2007

Third GC Charged for Options Backdating

Another general counsel has been charged with fraud related to options backdating.  Kent Roberts, the former GC at Network Associates -- now McAfee Inc. -- was charged by the U.S. Attorney's Office for the Northern District of California (indictment below) with two counts of mail fraud, one count of wire fraud, three counts of making false statements to the SEC, and one count of falsifying corporate books and records.  The SEC also filed civil securities fraud charges.   Previously, the general counsels for Comverse Technology and Monster Worldwide have been charged, and both agreed to plead guilty and cooperate. 

The allegations against Roberts concern two instances when he is accused of backdating options, once for himself and once for the former CEO, George Samenuk.  Roberts was responsible for the company's SEC compliance, and even served as a founding member of the "Ethics First Committee."  Network Associates created the committee in 2002 in response to internal control problems, and its responsibilities included investigating instances of employee fraud.  Needless to say, Roberts did not mention himself at any point in time.

The mail and wire fraud counts include both money/property and right of honest services theories of fraud.  While the recent Fifth Circuit decision in U.S. v. Brown limited the scope of private right of honest services fraud cases, the fact that Roberts backdated his own options grant may help the government by showing the kind of personal skimming that was missing in the Enron Nigerian Barge transaction at issue in Brown

A more troublesome issue for the government could be the statute of limitations for the counts related to the alleged backdating of Roberts' options, unless he waived the application of the limitations provision.  The mailing was on January 9, 2002, and the SEC filing was on January 10, 2002, both related to the Form 4 disclosure of the options grant.  The statute of limitations is five years, and the usual rule for mail fraud charges is that the limitations period begins running on the date of the mailing.  Similarly, the date of the false filing is the usual trigger for beginning the clock on that charge.  The indictment alleges an ongoing scheme because Roberts did not reveal the fraud, but that may not be sufficient to rescue those counts because there was no active concealment, just a failure to disclose.  Those appear to be two of the government's strongest counts because they allege Roberts acting in his own self-interest, which can be powerful evidence.  Absent a waiver of the statute of limitations, look for defense counsel to challenge those counts and try to have them stricken from the indictment. (ph) 

Download us_v. Roberts Indictment Feb 27 2007.pdf

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Fraud, Prosecutions, Securities | Permalink

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