Backdating of stock options leads to 10 General Counsel being charged this Year.
by Brooke Heath
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According to The National Law Journal, David Bayless, former head of the U.S. Securities and Exchange Commission's San Francisco office, said that the large number of incidents surrounding general counsel this year is "unprecedented."
"In the five years I headed the [SEC] office we might have one case. They have done 10 in one year," Bayless explained.
The majority of the charges brought against the general counsel were regarding stock-option backdating. This disturbing "trend" started as early as 10 days into the year when William Sorin, general counsel for Comverse Technology Inc., was fined by the SEC for backdating, according to The National Law Journal. He agreed to pay $3.1 million to settle a civil conspiracy claim. One month after that, Kent Roberts, former general counsel for McAfee, was also charged with backdating.
In March charges were brought against multiple attorneys, as two of Enron's lawyers were accused of lying to auditors in a civil enforcement case. That same month, Myron Olesnyckyj, general counsel for Monster Worldwide, settled a claim brought by the SEC for civil securities fraud.
In April charges against general counsel for Apple Inc., Tenet Healthcare, Amkor Technology Inc., and Mercury Interactive were filed.
In August Lisa Berry, formerly of KLA-Tencor Corporation and Juniper Networks Inc., became the latest general counsel to face charges. As General Counsel Consulting reported last month, Berry allegedly backdated stock options for the two companies from 1997 to 2003.
While the number of charges against general counsel this year is unparalleled, some, like Melinda Haag, an attorney with Orrick, Herrington & Sutcliffe, feel that the high number of charges is a result of the SEC's heavy focus on the group of attorneys.
According to The National Law Journal, Haag represented at least three general counsel who had been charged by the SEC. She said that there "is little doubt the SEC is focused on GCs as potential wrongdoers. The problem, in my view, is that the SEC's suspicion about GCs has almost reached a level of paranoia—if they believe someone within the company committed financial fraud, they assume in-house lawyers were involved. It is difficult to convince them otherwise."
In response to these claims, Linda Chatman Thomsen, director of SEC enforcement, said that the cases brought against the companies and their general counsel involved "secret slush funds, forgery, grants to fictitious employees, falsified corporate documents, self-dealing, self-enrichment, and lying" to auditors, according to The National Law Journal.
"Are we overreaching?" Thomsen asked. "You tell me."
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