Firm Has Millions in Troubled Clients

In April 2001, a few months before the stock tanked, Brocade gave Sonsini 60,000 options � a grant the SEC says was backdated to a five-month market low. Brocade’s board had made a special exception to its compensation plan in order to grant these options to Sonsini and one other board member on that day, securities filings show. The grant ended up becoming mostly worthless because it vested after the company’s stock price had plunged.

Brocade is just one of many Silicon Valley companies that share backdating problems and close ties to Sonsini and his firm. But Wilson Sonsini’s ties arguably go far deeper than most attorney-client relationships: At Brocade, Pixar and Juniper Networks, WS Investment Co. or Sonsini held hundreds of thousands of shares.

As company executives accused of options wrongdoing mount their defenses, their lawyers will likely swing the spotlight on the attorneys who advised their clients: Next month, for example, the lawyer for Brocade’s former chief executive will depose Sonsini in connection with the SEC’s civil suit against the executive.

Federal investigators will be paying attention, too � SEC lawyers have already subpoenaed documents from Wilson Sonsini about backdating at KLA-Tencor (see accompanying story). These probes will likely shed light not just on whether Sonsini and his firm gave executives bad advice on backdating, but whether the firm had a motive to do so, given that its lawyers could have personally profited from practice.

The firm would not respond to detailed questions about Sonsini and the WS Investment Co.’s options, citing fears that The Recorder would not treat the information “responsibly and fairly.” (See accompanying story for the firm’s full response.)

But in a 2003 interview for a Stanford University project, Sonsini said: “Very early on we adopted a policy that basically prohibits individual lawyers investing in clients. � It is not our policy to take large positions in companies. � We don’t take stock for fees.”

PART OF THE PICTURE

Publicly available SEC documents can only give broad outlines of the stakes Sonsini and his firm’s investment fund held in troubled clients. For example, Sonsini was required to file “Form 4s” on grants he received as a director and transferred to the fund, but the fund doesn’t have to disclose what it did with those shares.