Trial of McAfee Former GC Begins, Delay in Disclosing Critical E-Mails Explained

Dan Levine

The Recorder

Two critical e-mails in a stock option prosecution against McAfee's former general counsel weren't turned over sooner because contract lawyers at Howrey had marked them "not relevant," a Howrey partner explained in a federal court in San Francisco Thursday.

Robert Gooding Jr., the partner who headed Howrey's internal investigation into backdating at McAfee, said the contract lawyers' work was supposed to be reviewed by more senior lawyers, but in this case, the problem wasn't spotted.

Gooding's explanation came after a full trial day in U.S. District Judge Marilyn Hall Patel's court as the government kicked off its case against Kent Roberts.

Gooding characterized the omission as inadvertent, though defense lawyers from Cooley Godward Kronish expressed astonishment.

And while Patel had indicated Wednesday that "heads will have to roll," on Thursday she merely ordered Howrey to supply declarations detailing how the computer discovery system worked. The judge put off more detailed inquiries about the identities of the lawyers involved. "OK, nobody's head rolled," Patel said.

McAfee gave the government seven e-mails late on the eve of trial, even though they had been under subpoena for two years. In court Thursday, Gooding said two of those e-mails had previously been produced to the government. The firm's document filtering system missed another one.

Two more had been marked "relevant" by Howrey reviewers, but were not thought to be responsive to the grand jury subpoena, Gooding said. Assistant U.S. Attorney Laurel Beeler disagreed, but she, and the defense team, agreed they didn't bear on the case against Roberts.

That left two other communications from November 2000 -- the same window in which the date on one of Roberts' options grants is alleged to have been illegally changed to boost its value. The e-mails show that the date change on Roberts' grant was no secret -- McAfee's former controller and one other employee were in the loop.

Gooding said he was sorry. "In a document production this size, these things do happen," he said, adding that the error was "not deliberate in any way, shape or form."

Cooley filed a motion to dismiss shortly after the hearing.

"It is fanciful for [Howrey] to get up and say it is inadvertent," Cooley partner Stephen Neal said in court. "This is one of the most irresponsible searches in history."

Neal added that one government witness had told the FBI she knew nothing about the Roberts grant. But faced with the newly revealed documents, her attorneys proffered a different story Wednesday night, he said.

A packed courtroom greeted the lawyers Thursday for opening statements.

"We are here today because this man, Kent Roberts, tried to cheat his own company," said Assistant U.S. Attorney Timothy Lucey, who is trying the case with Beeler. The prosecutor made his presentation without rhetorical flourish, and tried to make the concept of stock options easy to understand. And Lucey said Roberts himself admitted his conduct to colleagues in May 2006.

Calling Roberts a "gatekeeper" by virtue of his role as general counsel, Lucey said the investing public relies on such attorneys.

"This lawyer put his own personal gain ahead of his duty to the company," he said.

Lucey didn't try to inoculate the jury against the defense's theory that McAfee's former controller, Terry Davis, was authorized to change Roberts' grant.

In his own opening, Neal was quick to point out that Lucey didn't mention Davis. The controller knew all about Roberts' grant. "No crime was committed in 2000," Neal said.

Roberts is the victim of an attempt by the company to blame Roberts for its option backdating problems, the Cooley partner said.

"The prosecutors were, in some sense, as much victims here as Mr. Roberts," Neal said. These sentiments were echoed in the defense's motion to dismiss.

Neal did not say whether Roberts would take the stand.

During the afternoon hearing on the missing e-mails, Wilson Sonsini Goodrich & Rosati partners Leo Cunningham and Rodney Strickland took a back seat to Howrey's Gooding. As McAfee's outside counsel, Wilson was described as a passive intermediary between Howrey and the government.

But during trial, the government called Wilson partner Boris Feldman as its first witness. Appearing without his trademark bow tie, Feldman described how Roberts first disclosed a "mistake" with his options grant. The phone conversation took place in May 2006, while Feldman sat in his driveway at home. "'I made a mistake,' I think that's the word he used," Feldman testified. He said that Roberts told him that he and Davis had been talking about his option grant, back in 2000, which was then underwater. "Terry [Davis] said, I can fix that," Feldman said Roberts told him.

He testified that Roberts asked Davis if there was anything wrong with that, and that Davis said no.

"My own reaction was somewhat surprised," said Feldman, who encouraged Roberts not to sugar-coat his explanation when talking to the CEO.

On cross-examination, Neal tried to draw out testimony that Roberts was not an experienced corporate lawyer. Feldman acknowledged Roberts was not as expert as Feldman's own partner, Jeffrey Saper, who handled McAfee's corporate work. But Roberts was still "quite good," Feldman said.

Feldman also acknowledged that Roberts never said he thought he violated McAfee rules.