Read The Recorder‘s roundup of the stock-option backdating scandal. There won’t be a test later … but there might be a subpoena.
Investigating backdating allegations would seem to fit the agenda of newly installed State Bar President Jeffrey Bleich, who has said the agency’s prosecutors should pay less attention to lawyers who commit small infractions and focus on attorneys who pose a “real risk” to the public. After all, backdating schemes have led scores of companies to restate their financials, in amounts ranging to the hundreds of millions of dollars. And at Apple, for example, the SEC alleges Heinen directed her staff to falsify corporate records to reflect a board of directors meeting that never happened.
But when contacted, Bleich, a partner at Munger, Tolles & Olson in San Francisco, declined to say whether the State Bar should investigate backdating allegations.
“I’m working on setting up a set of policies for the office of chief trial counsel so [prosecutors] can have a better sense of what the priorities of the [State Bar Board of Governors] are for prosecuting cases,” he said. “But in terms of individual prosecutions, that remains entirely within the discretion of the office of chief trial counsel.”
For an agency often accused of turning a blind eye to big-firm lawyers’ indiscretions, taking down a high-profile GC could be a big feather in its cap, said one ethics specialist who requested anonymity. Charges against backdaters, this lawyer said, could show the State Bar prosecutes not only the equivalent of the “corner drug dealer,” but also “the head of the Medellin cartel.”
If felony criminal charges are involved, Steedman and Nisperos both said that State Bar prosecutors normally let the legal process run its course rather than duplicate criminal prosecutors’ work.
Though State Bar prosecutors can hardly help but take interest if criminal charges are filed, SEC charges don’t go unnoticed.
“We consider acts of fraud and dishonesty to be very significant misconduct,” Steedman said.
But SEC charges present a more daunting task for State Bar prosecutors. As noted by Thomas Cahill, chief counsel for the New York appellate court department that handles discipline cases in Manhattan and the Bronx, SEC charges are often settled with a defendant neither admitting nor denying the allegations.
“If it’s a settlement with no findings,” Cahill said, “it would mean we’d have to prove the whole case ourselves.”
Yet even those who occasionally criticize the California agency allow that backdating is a complex crime that has only begun affecting lawyers in large numbers in the last couple of years.
“It’s too new,” said Karpman. “It takes [State Bar prosecutors] a couple of years to gear up.”
