Larry Sonsini and his firm, Wilson Sonsini Goodrich & Rosati, paid $9.5 million to client Brocade to forget about that little backdating thing.
Is it possible now that they'll have to pay more?
Might be if Gregory Reyes, Brocade's former CEO and current pokey-bound backdating whipping boy, has his way. On top of his militia of defense lawyers from Skadden, Arps, Slate, Meagher & Flom, Reyes has hired L.A. white-collar criminal specialist Terry Bird to figure out whether he's got some contribution claims against the likes of Sonsini, a former Brocade board member, and his firm, say people familiar with Bird's role.
The essence of such a claim would be something like: "You were my fancy-pants advisers when we turned Brocade into a backdating factory, so if I get a bill, you gotta help pay it." The shifting-the-blame maneuver can happen in any case with a bunch of defendants, like the one Brocade has filed against Reyes and other former executives.
Fearlessly led by Dewey & LeBoeuf's Ralph Ferrara, Brocade is trying to recover millions lost in settlements and lawyer fees as a result of the backdating scandal. The company is pursuing, count 'em, 10 former top brass it blames for the mess. Ferrara's fearlessness hasn't quite worked out, though -- on Friday the judge dismissed all claims against five of the execs, including HR chief Stephanie Jensen (don't get her an orange jumpsuit for Christmas -- Uncle Sam's got that covered). Reyes is still a defendant and no doubt will want to spread the blame around when it comes time to pay.
Sonsini and his firm paid $9.5 million to Brocade this summer, a deal the firm wouldn't describe, at the time, as a settlement. Brocade's board said that, in consideration for the payment, it wouldn't pursue its claims against the firm. But Sonsini and his firm haven't filed a motion for a good-faith settlement, which could put the kibosh on any type of contribution claims.
Bird wouldn't talk about his plans, and a Wilson spokeswoman declined to comment for this column.
So do Reyes' lawyers really have anything on Sonsini and his firm?
Richard Marmaro, who headed the Reyes criminal defense, toyed with the idea of blaming Sonsini, though he didn't end up calling him as a witness at trial. But when Marmaro deposed Sonsini in the spring of 2007, he grilled him on his role on the Brocade board and the firm's role as legal adviser, according to a transcript of the deposition that found its way to the Recorder offices.
Sonsini was questioned about signing off on two stock option grants that turned out to be backdated -- and for which Reyes has taken heat. One was for two of Sonsini's fellow Brocade directors, backdated to a three-month low of $12.90 on Oct. 1, 2001. Another was a huge grant to board members, executives and employees, backdated to a five-month low of $20.70 on April 17, 2001.
In the deposition, Sonsini said he had no idea that the grants, which he approved along with other board members by unanimous written consents, or UWCs, were backdated.
"Well, I signed this written consent, but, you know, I don't look at stock prices or stock dates," Sonsini said of the Oct. 1 grant. "I assume that this was granted at fair market value because it was granted under the terms of the plan, but I would not make any further inquiry."
Sonsini also revealed in the deposition his system for signing UWCs, which involved the sophisticated technology of sticky notes.
"They usually show up at my desk, my secretary opens my mail and would put a stack of mail that required signatures with usually a sticker on the signature page."
Marmaro: And the sticker on the signature page would be, like, "sign here"?
There were various drafts of the April 17 grant to Sonsini and other board members, and what ended up in the amended 1999 director plan was, at the least, remarkably favorable to the recipients. How the shifting options on the options crystallized was a mystery to Sonsini.
"Do you have any idea, as you sit here today, why the documents we've just been reviewing, at least some of which were created by Wilson Sonsini attorneys, at least by the metadata, bear different effective dates for the amendment of the 1999 director plan?" Marmaro asked.
Sonsini replied simply, "I do not."
Sonsini was also grilled about the better-known aspects of his and his firm's involvement at Brocade, like the part-time program that was used to grant backdated options that Wilson Sonsini apparently signed off on. That was something that plaintiffs lawyers seized on, accusing the firm of malpractice in a backdating derivative suit. Those claims were dropped when Brocade took control of the suit and Wilson Sonsini settled.
So it's these types of things that Reyes' lawyers most likely have in hand. They cast Sonsini and his firm in an unfavorable light, but they don't seem like smoking guns.
However, since it's the holidays, let's end on a more festive note, a little Christmas story about Sonsini and Greg Reyes' father, which also emerged from the deposition.
In late 2004, things were going badly at Brocade. The company had embarked on an internal investigation, and the SEC was nosing around.
On Dec. 18, Wilfred Corrigan -- the founder of LSI Logic and a friend of Sonsini's -- hosted a Christmas party. At the party Sonsini ran into Reyes' father, Greg Sr., also a longtime friend. We'll let the deposition transcriber, with a little judicious editing for length, take it from here:
Marmaro: Do you remember having a conversation with Mr. Reyes Sr. in Mr. Corrigan's library, just the two of you?
Marmaro: Do you remember saying in words or substance to Greg Sr., "Greg, your job is to protect your son. My job is to protect and guarantee zero personal liability to the Brocade board and myself."
Sonsini: No. That doesn't sound like something I would say.
Marmaro: And I'm talking not just about a quote but in substance; remember anything like that, Mr. Sonsini?
Sonsini: I'm sure I may have said that, you know, now that -- you know I'm a director of Brocade, I've got fiduciary duties to shareholders and that's what my obligation is going to have to be. That, I think -- I think I did have some statement like that because this was a very disturbing time and we were both very disturbed by this. I mean, I had no idea what was going on with these options stuff at all.
Larry Sonsini has been successful at many things in his life, but holiday party small talk? Not one of them.