With some cases, you need a scorecard to tell the players. With Marvell, you practically need a flow chart. Fortunately, we have one. Click for the .pdf.
The company announced, however, that it “did not accept in full” the recommendations of its special committee with respect to Dai, and that it chose to retain her as director of strategic marketing and business development, which it described as a non-management role.
This would be a sea change for Marvell, as people familiar with the company said the couple � along with Sutardja’s brother Pantas, who is Marvell’s chief technical officer � have tightly controlled the company and its board.
This was true when it came to awarding stock options: Dai and Sutardja made up the board’s options committee, and, according to several people who have reviewed Marvell documents, they would pick the dates for employee option grants and pass them on to the human resources department.
HR employees would then put together a spreadsheet with names and dates for employee options, and GC Gloss would be asked to draw up meeting minutes memorializing the grants. The spreadsheet would then be attached to the minutes.
The problem, said several people involved in the case, is that in dozens of instances, purported options committee meetings never occurred.
As Marvell described the situation in an SEC filing last month, “there were numerous instances in which grant dates were chosen with the benefit of hindsight as to the price of the company’s stock.”
The options process became a point of concern to Marvell insiders last year, prompting the board to appoint director Arturo Krueger as a one-man special committee to investigate past options practices.
IN-HOUSE INVESTIGATIONS
Soon after Krueger began his probe, the company’s outside lawyers at Pillsbury Winthrop Shaw Pittman suggested he hire separate outside counsel. They recommended McDermott, Will & Emery partner Matthew Jacobs � a former federal prosecutor whose intensity, said people involved in the case, ended up making Krueger nervous.
Jacobs entered private practice about two years ago with a reputation as a dogged white-collar investigator. He brought the same mindset to Marvell, working quickly to interview employees and ferret out the details of the company’s options practices. (Reached last week, Jacobs said he couldn’t discuss the findings of his probe.)
Along the way, said people involved in the case, Krueger worried that Jacobs was being too aggressive. Krueger grew particularly fretful when he was told that Sutardja and Dai planned to refuse to submit to Jacobs’ questions.
That probably would have forced Marvell’s board to fire the pair � which could have been disastrous to the company’s stock price.
So in an effort to rein in the probe, Krueger brought in another former federal prosecutor, Patrick Robbins, to oversee Jacobs, said several people with direct knowledge of that situation.
A partner at Shearman & Sterling who worked with Jacobs in the San Francisco U.S. attorney’s office, Robbins was expected to tone Jacobs down.
At first, said people involved in the probe, it seemed to work. Sutardja and Dai came in and answered questions. They also switched lawyers, from top white-collar defenders William Goodman and Cristina Arguedas to John Potter of Quinn Emanuel Urquhart Oliver & Hedges, and Walter Brown Jr. of Orrick, Herrington & Sutcliffe.
But for Krueger � whose lawyer, Robert Breakstone, didn’t respond to requests for comment � bringing in Robbins backfired on two fronts. According to several people familiar with the investigation, Robbins turned out to be as independent as Jacobs. (Reached last week, Robbins also said he couldn’t discuss the findings of the probe.)
More problematic was the fact that around that time, Marvell’s embattled GC, Gloss, told the company’s audit committee that Krueger had made statements indicating bias in favor of top management.
GLOSS GOES
Of all the executives who became caught up in the options investigation, it’s Gloss’ story that may be most compelling. The former Pillsbury associate made news several years ago because of his involvement in an inadvertent voicemail to a competitor in which Marvell executives were heard talking about poaching employees and trade secrets. That voicemail resulted in costly, ongoing litigation.
Still, Gloss retained his position at Marvell. But that would change before the investigation was over, when he called into question Krueger’s impartiality.
Gloss’ attorney in the SEC investigation, Miles Ehrlich of Ramsey & Ehrlich in Berkeley, said Marvell’s claims of attorney-client privilege preclude him from detailing Gloss’ position.
Others familiar with the case were similarly circumspect, though they offered a bit more detail.
Around the time Gloss was interviewed, they said, he had a phone conversation with CEO Sutardja about the investigation. Soon after, he had a personal encounter with Krueger that, Gloss later told Marvell’s audit committee, indicated Krueger was favoring Sutardja and Dai.
In response, the company’s board brought in Sofaer � a fellow at Stanford’s conservative Hoover Institution who recently joined the board of Rambus, another troubled Silicon Valley company � to look into Gloss’ allegations and the propriety of the probe.
Sofaer hired lawyers with Dechert to assist his investigation, but in the end he made no finding as to whether Krueger behaved improperly or whether Gloss’ accusations had merit.
Instead, Sofaer said that for reasons of appearance and propriety, Krueger should be removed from the options probe. This, of course, didn’t mean Gloss was vindicated. According to people who have reviewed internal Marvell documents, the board said it was firing him before the options probe was over because he waited too long to notify the audit committee of his concerns about Krueger.
A Marvell spokesman said he couldn’t comment on personnel matters, and no one involved in the matter will offer further details. But Gloss has retained an employment lawyer � McGuinn, Hillsman & Palefsky’s Cliff Palefsky � and some believe that points to a whistle-blower claim being filed.
Krueger, meanwhile, remains on the board but was replaced on the special committee by two non-board members, William Howard and John Quinn.
Working with the two outside lawyers � Jacobs and Robbins � they recommended that Dai be pushed out as COO.
Pete Hillan, a spokesman for Marvell from the public relations firm Fleishman Hillard, said the company is cooperating with the SEC and U.S. attorney probes.
CLOUDS ON THE HORIZON
It’s not clear how the SEC will look at Marvell’s failure to comply fully with its own investigation. The company is believed to be the first to publicize probe results with which it didn’t comply.
There is also an additional potential conflict: In recent weeks, Dai has dropped her attorneys at Orrick and retained Potter of Quinn Emanuel, who already represents her husband. Potter said he couldn’t discuss the results of the internal probe.
People familiar with the matter say the SEC is already perturbed with how the company has dealt with government investigators, particularly with the glacial pace of document production.
The company earlier this month dropped its outside counsel at Pillsbury, replacing them with Wilson Sonsini Goodrich & Rosati.
Spokeswomen for Pillsbury and Wilson declined to offer details on the case, and Hillan wouldn’t say why the company switched law firms.
Jesse Fried, a professor at Boalt Hall School of Law who specializes in business ethics, said it’s rare for a company not to adopt the recommendations of its own investigation.
“If they don’t follow the recommendations, that’s going to raise a red flag with the SEC,” Fried said.
But, he added, it’s conceivable that the company’s board felt Dai was unfairly blamed � or that, business-wise, dropping her didn’t make sense.
“I can see a company going through this stock options mess, deciding inappropriate things were done, and deciding not to decapitate somebody because the costs to the shareholder would be too high,” he said.
Fried compared the situation to another high-profile executive with options woes. On the one hand, he said, company directors need to think about strictly applying the law. And on the other hand, there’s the fiduciary duty to consider.
“You have to ask yourself, �What is the right result?’” he said. “If you care about shareholders and what’s good for them � and supposedly these rules are all about protecting shareholders � you are not going to want to throw out Steve Jobs.”
