|
Inside
the Backdating Probe: the SEC Speaks By Benjamin Pimentel SAN FRANCISCO - For Marc Fagel's team of government investigators, what began as an accounting and stock market puzzle turned into a major fraud probe that they believe has lifted the veil on the tech industry's shadier side. Fagel has led a team of about 30 attorneys, accountants and paralegals with the U.S. Securities and Exchange Commission office in San Francisco, who have combed through millions of e-mails and conducted dozens of interviews in a stock-options backdating scandal. Their work is now seen as having shed more light on how many tech companies manipulated stock-option grants by filing false financial information and sometimes even doctoring or making up meeting minutes -- even as some other legal experts argue that the agency has overreached by mistaking record-keeping and administration glitches for fraud. One of the investigation's first major cases ended this week when a federal judge in San Francisco sentenced ex-Brocade CEO Gregory Reyes to 21 months in prison and ordered him to pay a $15 million fine. Reyes is the first CEO to be sentenced to jail time for his role in stock-options backdating. Several other executives have struck plea agreements and paid hefty civil fines. In an interview last month, Fagel's team talked at length about the investigation, which has led to legal action, including criminal indictments, against top executives from well-known tech firms such as Apple Inc. Juniper Networks Inc. and Broadcom Corp. Stock options give employees the right to buy shares in the future at the market price on the date a grant is approved. If the stock rises later, the recipient can cash in the option to take profit. Backdating a grant to a prior date when the price was lower increases the award's value. A company can legally do that, but the transactions have to be reported in public filings. Fagel described stock-options backdating "just another fraud case," although he said the scandal also turned up some surprises for the agency. Members of the team, who have also worked with the U.S. Justice Department on backdating issues, declined to discuss specific cases or ongoing investigations. Tipped by the press When the issues first came up, Faglel said his team didn't exactly know what it was dealing with. The agency was alerted to the issue thanks to the work of academics, analysts and news organizations (particularly the Wall Street Journal, which first broke the story), who described how many companies appeared to be granting stock options at a time when their shares were trading low. Fagel said the reports talked about "how unusually lucky a lot of companies seem be on the timing of their options grants." At first, the agency thought the scam involved classic insider trading, which occurs when company executives make trades based on knowledge about their company that has not yet become public. But Fagel said the SEC eventually came to "an increasing realization that the companies were in fact lying about the timing of the grants." To prove their cases, the SEC combed through e-mails and documents and interviewed executives and rank-and-file employees at the various companies involved. A critical part of the scam, said Cary Robnett, the SEC's assistant regional director in San Francisco, was doctoring minutes of meetings to change the date of stock options grants. "For me, the practice of a lot of people involved in creating bogus minutes, high level people, shocks me," she said. The SEC team also relied on so-called V-charts, which they prepared to get a visual idea of when stock options were granted in relation to the company's stock. Options granted at the bottom of the "V" -- where the stock was at a low point before shooting up -- typically triggered more suspicions that the company was doing something wrong. "You see a dramatic picture," said Sheila O'Callaghan, a branch chief with the enforcement arm of the SEC's San Francisco office. "The stock prices were telling us a story." Surprised by lawyer involvement The SEC and other agencies have, so far, filed complaints against 10 chief financial officers, nine CEOS and eight attorneys, according to Robnett. The involvement of attorneys caused the most surprise for the team. "One striking thing is how many lawyers have been sued and how critical a role that lawyers were playing in this fraud," said Michael Dicke, assistant regional director for enforcement at the SEC's office in San Francisco. These lawyers, who were often the top-ranking legal experts at their respective companies, "had the necessary knowledge that what they were doing was wrong, and they were doing these things. That's surprising and disturbing," Dicke said. Fagel said many corporate attorneys were "critical to the backdating process" and were "involved in very complex decisions about stock-option grants and what they mean for the company's financial statements." The most prominent corporate attorney accused of playing a lead role in the options backdating scandal was Nancy Heinen, the former general counsel of Apple Inc. She was accused of filing false paperwork, including bogus board meeting minutes, in connection with an options grant to CEO Steve Jobs. In a January 2001 e-mail to Jobs, she purportedly suggested a specific date for his options grant, saying, "To avoid any perception that the board was acting inappropriately for insiders prior to Macworld announcements, I suggest we use Jan. 10, the day after your Macworld keynote, at $16.35. That was one of the lowest closes of the month." "It was somewhat surprising that a general counsel for a large corporation -- a previously respected general counsel -- would do the things that we believe she did," Dicke said. Heinen has denied the charges and is fighting the case. "Everything that Nancy Heinen did was fully transparent to the board and to the finance team, and she didn't deceive anybody," said her attorney, Miles Ehrlich. Another Apple executive, Chief Financial Officer Fred Anderson, settled with the SEC. "The accounting judgment made by Apple's accounting team ... was absolutely reasonable and defensible under the accounting literature that existed at the time," said Ehrlich, who previously served as a prosecutor for 11 years and was chief of the white-collar crime section of the U.S. Attorney's Office in San Francisco. "Unfortunately, the SEC got this case wrong," he said. "It simply is not a case of backdating. In the Apple case, there was no 'there' there." Attorneys for Lisa Berry, another lawyer accused of fraud in connection with options backdating, have also questioned the legal basis of the SEC's allegations. Berry served as general counsel for KLA-Tencor Corp. and Juniper, and she allegedly played a critical role in options backdating schemes at both tech companies. The SEC says that -- in an apparent sign of how options backdating became almost standard practice in some companies -- Berry even left instructions with employees in the company's human resources department prior to her leaving KLA-Tencor on how to "carry on with the scheme after she had departed." Berry has denied the charges. In a motion filed in November asking a federal judge in San Jose, Calif., to dismiss the complaint, her attorneys argued that the agency "has dramatically and impermissibly overreached in bringing this motion." Berry's attorneys have also argued that "companies can use an historical measurement date without taking a compensation charge in a variety of circumstances that do not result in a violation of law." Charges still controversial Other legal analysts have raised the same argument. Reacting to Reyes' sentence this week, Phillip Stern, an attorney with the Chicago law firm of Neal Gerber & Eisenberg, said he thought the punishment was too harsh, given serious questions on whether the ex-Brocade executive did anything illegal. "I thought there were some very serious issues raised by the defense in terms of what Reyes' understanding was of very complicated accounting rules," he said. "These are very difficult cases to prove because of the complexity of the accounting involved." Reyes' attorney, Richard Marmaro, has appealed the sentence. He also argued that Reyes "reasonably and justifiably relied on the professional accountants in the Finance Dept. within the company" to account properly for Brocade's stock-options policies. "I think it is unfortunate that the SEC has chosen to use its resources to destroy the professional careers of individuals, many of whom were the founders and responsible for building great companies, based upon a technical accounting opinion that was widely misapplied by so many companies throughout the U.S. and did not impact the financial data that investors really care about: revenues and cash expenses," he said. Fagel's team said that some companies, particularly their human resources departments, backdated options and neglected to record the change because it was not clear to them that had to be done. In fact, some companies came forward and restated their earnings based on these types of errors. But Fagel stressed that his team only went after executives who clearly knew the rules but still went ahead and violated them. "Nobody has an interest in bringing 200 cases against low-level HR people who were inputting bad information into the system," he said. "You want to find out: Was management involved?" Still, proving a specific executive's guilt is tough, Fagel's team said. Dicke compared the legal challenge they faced to the case of baseball star Barry Bonds, who has been accused of lying to a grand jury about whether he knowingly used illegal performance-enhancing drugs. "They have to prove that he knowingly made false statements," he said. "How do you prove that? That's a tough thing, and that's what we face in all our cases. We've got to usually prove some level of knowledge." In fact, Berry's legal team has argued that the SEC has not "adequately alleged" her "scienter," a legal term that refers to an accused person's mental state in committing an offense. Fagel said that many accused executives also typically claim that they were simply not aware of the legal requirements related to stock-option grants. "The first line of defense from the people we have sued, especially the non-accountants, was, 'I'm not an accountant. I don't know anything about this,'" Fagel said. "But we do have evidence that they were aware of the issues." Other accused executives also argued that they didn't personally benefit from the options grants, which companies have used mainly to attract and keep the best engineers and managers in a highly competitive industry. To this, Fagel countered that executives benefited "because they own a lot of stock and the stock goes well as long as they don't come forward with the bad information. And they get to keep their jobs by meeting Wall Street's expectations." David Larcker, an accounting professor at the Stanford Graduate School of Business, said the accounting principles and rules involved in the options backdating issue were clear. "It's not like this is some kind of obscure accounting standard," he said. "They must have thought that the chances of getting caught were zero. For some of these companies, it must be hubris." Some corporate-governance advocates said the federal probes of the options backdating scandal should help prevent the practice from being repeated. "The SEC proceeded solidly and deliberately and carefully," Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware, said after Reyes was sentenced. "The fact that you have a conviction here is pretty significant." But Fagel said he believed stock-options backdating has now become an outdated scheme with tougher reporting regulations for corporations. "A lot of the misconduct is
going to be avoided in the future because of Sarbanes-Oxley," he
said. "To some extent, we are cleaning up some past misconduct
rather than have concerns about future misconduct in this area. My
view is it's pretty unlikely that a company is going to be
backdating stock options going forward, given both the changes in
the law and the scrutiny that's been given to this area."
Backdating Issues Create Lynne Marek Attorneys have more bad news for corporate executives caught in the stock-options backdating quagmire: Millions of dollars in unpaid taxes on the option gains will be due by the end of this year. Some lawyers had hoped that the Internal Revenue Service might give companies a longer period to investigate the issue and clean up any problems, getting executives off the hook for higher taxes on their gains. Instead, the IRS in a recent bulletin followed through on threats to cut no slack for executives who profited from backdated options. "Anyone unfortunate enough to be an officer under this process may get hammered," said Joseph Ronan, a Morgan, Lewis & Bockius attorney in Philadelphia who works on employee benefits and executive compensation issues. The IRS ruling could affect the top 20 officers at the 152 companies that have so far disclosed that they may have a problem with backdated options. A stock option gives its holder the opportunity to buy stock at a certain price, usually the price on the date that the option is granted. In backdating, a company will peg the option to a date before it is granted, allowing the holder to benefit from the stock's rise between the two dates. It is not illegal if it is disclosed to shareholders and accounted for properly, but some companies didn't follow those guidelines. The oversight is forcing those companies to restate earnings to take account of additional noncash compensation given to executives. The U.S. Securities and Exchange Commission has said it is investigating the issue. 'IN THE SOUP' Some 152 companies have announced internal reviews, SEC inquiries or U.S. Department of Justice subpoenas related to stock-options grants, according to shareholder advocate group Glass Lewis & Co. Some of the companies include Children's Place Retail Stores Inc., information security company Safenet Inc. and health insurer UnitedHealth Group Inc. Executives at Web site owner Monster Worldwide Inc. and telecommunications software company Comverse Technology Inc. have resigned over the issue. Now, the IRS is saying that executives who received the options and whose companies are restating earnings should pay the additional tax. "The SEC's authority, expertise and ability to access information on a real-time basis allow us to identify potential options backdating exam subjects more precisely and more quickly than we would be able to do on our own," said IRS Commissioner Mark Everson in testimony before a congressional committee in September. While the October IRS statement is a proposal, attorneys expect it to become final soon. "If you've restated your earnings or expect to restate, then you're in the soup," said Ronan, who heads the Philadelphia Bar Association's tax section. Being in the "soup" will mean a 20 percent tax in addition to the usual 35 percent rate for income from exercised options, resulting in a 55 percent rate. In some states, such as California, there will be another 20 percent tax, Ronan said. On top of that, there may also be interest to pay. "The tax rate gets pretty high," said Stuart Lewis, an attorney in the Washington office of Pittsburgh-based Buchanan Ingersoll & Rooney. "It's just going to pile on to the other problems that these people have." Some companies are still figuring out whether they have a problem with backdating and, if so, how to deal with it, attorneys for corporate clients said. In most cases, it's not an issue of fraud as much as being careless, said Pam Baker, a Sonnenschein Nath & Rosenthal attorney in Chicago. "What companies do about it depends in part on what triggered the problem, how big it is and how many people are affected by it," said Baker, who leads her firm's employment benefits and executive compensation practice. If there is a problem, then restating earnings is just part of the solution. There is still the complicated task of fixing the options, and it is a bit unclear how that task is to be accomplished, the attorneys said. The companies can ask executives to revise options agreements or, if options have already been exercised, the executive could return the shares, but chances are that the stock has already been sold, Ronan said. http://www.law.com/jsp/ihc/PubArticleIHC.jsp?id=1163066720664 Backdating Probe Snares General Counsel By Jill Nawrocki The stock option backdating
scandal is rapidly turning into the problem of the year for general
counsel. In July, William Sorin became the first corporate legal
chief to be criminally charged for suspicious options grants. Mr.
Sorin was the outside general counsel of Comverse Technology, Inc.,
for more than 20 years. He left the software manufacturer this past
May. A Counselor Pulled From the Shadows By Gary Rivlin
LARRY
W. SONSINI, Silicon Valley’s most feared and sought-after lawyer,
dresses in fine Italian suits even as the rest of the Valley — other
high-priced attorneys included — ply their trades in chinos and blue
Oxford shirts. He is soft-spoken and restrained, sometimes eerily
quiet, in contrast to the brash Silence, in Mr. Sonsini’s case, has been golden. During his 40 years as a lawyer, Mr. Sonsini, 65, has served as legal counsel to the most prestigious venture capital firms in Silicon Valley. He helped to bring public many of the leaders of the technology boom, including Netscape Communications, Pixar, Google, Apple and Sun Microsystems. The investment banking firm of Robertson Stevens, based in San Francisco until it closed its doors in 2002, handled more than 500 initial public offerings over a 30-year period, and Mr. Sonsini was there for most of them. "In one way or another, Larry was involved in almost every deal we underwrote," said Sanford R. Robertson, founder of the bank that bore his name. Mr. Sonsini, who briefly served on the board of the New York Stock Exchange, is not just the area’s most influential lawyer, Mr. Robertson said, "He’s probably the most powerful person in Silicon Valley." Powerful, but discreet. Powerful, but rarely center stage. While Mr. Sonsini is hardly a shrinking violet, he cultivates the image of Silicon Valley’s most ubiquitous supporting player, often preferring to say his lines behind the scenes. "It’s not my job to be in the newspapers," he said in a telephone interview Wednesday. "I think my clients like me to be a trusted adviser with a high degree of integrity and stay out of the limelight." BUT many of Mr. Sonsini’s clients are currently in the limelight because of a growing scandal involving possible improprieties or illegalities relating to the backdating of lucrative stock options. Mr. Sonsini and his firm, Wilson Sonsini Goodrich & Rosati, based in Palo Alto, Calif., represents or represented "just under 50 percent" of Silicon Valley companies implicated in the scandal, according to a spokeswoman for the firm. That representation included offering advice on corporate governance issues like the proper handling of stock options. Mr. Sonsini has not been accused of any wrongdoing in the scandal, nor is it even clear that he will be swept up in the investigation of questionable options policies that his clients adopted. But at least one former client that federal prosecutors have charged with criminal wrongdoing, the chief executive of Brocade Communications Systems, noted earlier this year that Mr. Sonsini advised the company on its stock options policies. The executive, Gregory L. Reyes, has declined to comment more recently; Brocade’s attorney described Mr. Sonsini as a "giant" and "brilliant lawyer." Mr. Sonsini declined to comment about Brocade and said that he was also "a little reluctant" to discuss the options investigation more broadly. "Not because I’m defensive, but because we represent a number of companies involved and it’s not appropriate for me to get out ahead and comment on things," he said. Even so, this man who has stuck mainly to the shadows now finds that the regulatory and prosecutorial spotlight aimed at his clients is casting a glare on his own actions. And Silicon Valley’s technorati are suddenly chattering about Mr. Sonsini, the éminence grise of high tech, with a frequency usually reserved for Google, the precinct’s venture capitalists or its hottest start-ups. Those who have worked with Mr. Sonsini, including several rival attorneys who have sat across the table from him in negotiations, generally describe him as a wise man with a strong moral compass. "You can hear rumors, and people talk, but his reputation has been durable in the more than 20 years since I’ve been here," said Bill Campbell, the chairman of Intuit, the business software company and one of Mr. Sonsini’s longtime clients. Robert V. Gunderson Jr., a founding partner at Gunderson Dettmer, another prominent Valley firm, stated: "Larry is a fierce but honorable competitor." Despite the hubris that permeated Silicon Valley during the tech boom of the mid- to late 1990’s, most companies there managed to avoid the public fates that later turned Enron, WorldCom and Tyco International into shorthand for corporate greed. But now Silicon Valley is emerging as the center of gravity for this latest inquiry into corporate abuse. Federal investigators are examining the extent to which top executives fudged dates — and then hid the fact that they did so — so that stock options they granted themselves and their employees would provide a bigger financial windfall when they chose to cash them in. And one man at the center of it all is Larry Sonsini. Mr. Sonsini’s firm provided legal counsel on corporate governance issues like the proper handling of stock options to roughly a dozen of the 25 Silicon Valley area companies implicated so far in the widening probe. Those 25 companies are either under federal investigation or have announced their own internal reviews. FEDERAL prosecutors filed criminal charges against two former executives of Brocade Communications, a data storage equipment maker based in Silicon Valley, 10 days ago, claiming that the two officers backdated options. Wilson Sonsini served as outside counsel to Brocade and Larry Sonsini himself was a member of Brocade’s board and sat on the compensation committee until stepping down from the board last year. Prosecutors have accused Brocade’s former chief executive, Mr. Reyes, of defrauding not only investors but also its board by doctoring documents, including board minutes. Mr. Reyes, through his attorney, Richard Marmaro, denied any wrongdoing, dismissing as clerical errors any alleged forgeries. But prosecutors, questioned at a news conference, said that they had not ruled out the possibility that Mr. Sonsini could be charged at a later date. In February, Mr. Reyes told BusinessWeek that Mr. Sonsini encouraged him in 1999 to assume sole authority to award Brocade options through the creation of a so-called committee-of-one. Mr. Sonsini did not deny Mr. Reyes’s contention so much as muddy the waters. "I’m not so sure the committee-of-one didn’t exist before becoming counsel to Brocade," he said. Committees-of-one are typically established in intensely competitive job markets like the one the Valley presented in the late 1990’s, where speed and oversize compensation packages were essential to recruit top people. They are legal, but they can also place public companies on dangerous ethical ground because of the potential for abuse. One member of the Valley’s legal profession, who requested anonymity because he sees Mr. Sonsini regularly and said he wanted to maintain good relations with him, said that he also had helped Valley companies create committees-of-one. But once you confer that much power on a single individual, he said, "you better watch what the guy does." When read that quote, Mr. Sonsini said that "you should not assume that those issues were not addressed," suggesting that he was monitoring Mr. Reyes but could not possibly have known that the executive might have been forging dates and documents. It is not clear what role, if any, Mr. Sonsini and other lawyers at his firm played in the legal woes of some of their clients, but over the last several years, the S.E.C. has aggressively pursued penalties against lawyers who give clients bad advice. "It’s a frontier area right now," said Alan R. Bromberg, professor of law at Southern Methodist University in Dallas. "The S.E.C. is pushing toward holding lawyers responsible even if they give bad advice, rather than fraudulent advice." But Mr. Bromberg also said that serving as outside counsel to a company while sitting on the company’s board was not usually a problem. "It’s essentially a disclosure issue," he said. "You need to make sure that everybody that is involved in the decision-making process is aware of the two hats an individual is wearing." Just as it would be difficult to exaggerate the breadth of Mr. Sonsini’s reach across Silicon Valley, it would be hard to overstate his influence inside his own firm. Mr. Sonsini dominates Wilson Sonsini as few lawyers ever dominate a firm. Allen Morgan, a former Wilson Sonsini partner who worked there between 1982 and 1997 (he is now a prominent Valley venture capitalist), estimated that Mr. Sonsini’s own practice was at least three to four times as large as that of the firm’s next closest partner — an estimate that Mr. Sonsini did not dispute. For nearly three decades, Mr. Sonsini served as the firm’s chief executive, until ceding the post to a younger partner last year. He is still the firm’s chairman. "He’s like the Hollywood lawyers," said Ron Conway, a prominent Silicon Valley angel investor who has known Mr. Sonsini 25 years. "He acts like a counselor and a consigliere. He’s the deal maker and the deal arranger." When Carleton S. Fiorina, former chief executive of Hewlett-Packard, came under attack by her board in 2001 after she announced plans to purchase Compaq Computer for $25 billion, she relied heavily on Mr. Sonsini to help her counter opposition to the deal. He has also advised Steven P. Jobs of Apple and Scott McNealy of Sun Microsystems, among others. Clients say that they can phone Mr. Sonsini at 11:30 at night, and say they are equally certain he would make himself available at 5 in the morning. Like a legal Zelig, he has been present at many critical moments in the Valley’s history, though his central role in those events usually surfaces only after corporate or legal documents are filed or when tongues begin wagging over a few glasses of fine California cabernet. "Larry has the ability to make C.E.O.’s feel like they are his only clients," said Craig W. Johnson, Mr. Sonsini’s partner for 19 years until leaving the firm in 1993. Mr. Johnson, quoting another former Wilson Sonsini partner, said Mr. Sonsini could juggle so many demanding clients because he performs like "a machine gun with every bullet hitting the center of a moving target." Mr. Sonsini is not one to offer encouraging pats on the back or ask after colleagues’ children, acquaintances say. "He’s not someone prone to expressions of emotion," said Kenneth P. Wilcox, who, as chief executive of the Silicon Valley Bank, has worked closely with Mr. Sonsini for several years. Mr. Morgan, the former Wilson Sonsini partner, said that he did not recall Mr. Sonsini ever raising his voice in the 15 years that they worked together. But Mr. Sonsini’s clients, some so young they seemed barely out of short pants, have not always proved as calm. It is then, when a client is in the midst of an outburst, that the Valley’s superlawyer might be at his best, acquaintances say. "He’ll be representing a guy who’s pounding the table and beyond mad," Mr. Robertson said. "But Larry, who has a very quiet style anyway, will calmly take this person through the situation, and patiently explain what the law is and what is possible. I’ve witnessed this on many, many occasions." WHEN Mr. Sonsini graduated from the Boalt Hall School of Law at the University of California, Berkeley in 1966, he chose to join a four-lawyer firm in a backwater whose very name, Silicon Valley, had yet to be coined. Over the following decades he orchestrated the firm’s transformation into a 600-lawyer juggernaut. "Larry Sonsini is a guy who grew with, and then helped to define, Silicon Valley," said Mr. Campbell of Intuit. Mr. Sonsini studied securities law at Boalt and from the start of his career he made that his specialty, catering to the Valley’s venture capitalists, some of whom would send a start-up his way that they thought might be ready to go public. In turn, Mr. Sonsini parlayed his ties to the area’s most promising start-ups into a lucrative relationship with the country’s top investment banks, including Goldman Sachs, Morgan Stanley and Merrill Lynch. "The investment banks wanted to build relationships with certain law firms who were in the industry," Mr. Sonsini said. "As I got to know these banks, it enabled me to introduce clients to them." Mr. Sonsini’s ability to ingratiate himself with those in a position to throw business his way partly explains his rise to the top of the Valley’s legal food chain. So, too, does his business acumen. He is an entrepreneur in a land of entrepreneurs who, by all accounts, has about as a good a feel for corporate strategy as his most gifted clients. "He’s as good a businessman as he is a lawyer, and he’s built the dominant law firm in Silicon Valley," said Joseph A. Grundfest, a former Securities and Exchange commissioner who now teaches at Stanford Law School. "That gives him lots of credibility with executives also looking to build successful businesses. "He gets them, and they get him," Mr. Grundfest added. Mr. Conway, the prominent Valley angel investor best known for his early investment in Google, first met Mr. Sonsini around 1980 and said that the lawyer had an immense, unrivaled network of contacts. Mr. Sonsini can open those doors for those he represents — and slam doors shut and cause fits of anger or panic among those who oppose him. "He has access to every C.E.O. in the Valley," Mr. Conway said. "They’ll pick up the phone for him immediately." As an example, Mr. Conway offers Google, which was founded by Larry Page and Sergey Brin, and which is run by Eric Schmidt. "If you’re going to go crossways with him, you’ve got a problem, because if it’s an issue at Google, he’s going to call Eric Schmidt and Larry and Sergey," Mr. Conway said. "Or he’ll call David Drummond, who used to work with him and is now a honcho at Google. He has influence everywhere." SOME say Mr. Sonsini is a much better deal maker than he is a lawyer. But one prominent rival, Bruce Alan Mann, a senior partner at Morrison & Foerster of San Francisco, dismissed that criticism as unfounded. He said that Mr. Sonsini, who taught securities law at Boalt Hall from the mid-80’s until last year, could quote the intricacies of Delaware case law from memory. "Anyone who says Larry isn’t much of a lawyer is being jealous," Mr. Mann said. "He’s as on top of the law as any lawyer I know." Others in the Valley describe Mr. Sonsini as a walking conflict of interest, a problem they say is born out of the sheer breadth of companies he and his firm represent. For example, he represents not only Hewlett-Packard but also Sun Microsystems, which he incorporated in 1982 and helped take public in 1986 — and there are no two fiercer rivals in Silicon Valley than those two. Still, some clients say Mr. Sonsini’s omnipresence does not bother them. "If you really believe this guy isn’t trustworthy, if you believe he can’t silo his approach to giving you advice, then don’t use him," Intuit’s Mr. Campbell said. Mr. Sonsini, he said, has often told him that he cannot help him because of a conflict. "I trust him," Mr. Campbell said. Perhaps Mr. Sonsini’s most pointed potential vulnerability amid the current options scandal is a trait that clients and others generally offer as a compliment: so deep is his understanding of the issues that management is facing that it is often difficult to tell where his legal advice ends and his business counsel begins. "Larry is a master in my mind of knowing what’s important for the client, and focusing on it, and not letting the legal niceties get in the way of accomplishing the client’s goal," Mr. Mann said. "He doesn’t let legal issues that can be resolved kill a deal." But sometimes such niceties are critical to keeping a client out of hot water. Mr. Sonsini may have offered astute business advice when he helped companies like Brocade contend with the hiring crunch that now lies at the root of the Valley’s options problems — but such advice has also drawn the attention of investigators and regulators who are examining whether it was legally sound. Although it remains unclear exactly who or how many may have crossed the legal line during the Valley’s boom years, veterans of the dot-com craze said that those swept up in it found themselves in the midst of a financial whirlwind. "It was a very peculiar time when some of this stuff happened," Mr. Gunderson, the Valley attorney, said. "I think people to a certain extent lost their bearings."
|
|
A Feast
|
