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If an in-house lawyer has anything to say about the Sarbanes-Oxley Act, it’s usually a complaint. But when faced with potential wrongdoing at her small Texas-based company, Karen Austin found that the year-old corporate governance law was her new best friend. Austin, 50, is general counsel at American Building Control Inc. (ABC), a security company based in the Dallas suburb of Lewisville with revenue last year of $44 million. Recently she had to cope with an in-house lawyer’s worst nightmare: how to respond to potential wrongdoing when the allegations point to the CEO. Last fall Austin began to hear allegations that then�CEO Niklaus Zenger had failed to disclose he was “related” to companies that had sold software and furniture to ABC. Austin asked Zenger about the claims, which he angrily denied. But the GC felt compelled to look into the charges. She says she was aided by the reporting provisions of Sarbanes-Oxley, which helped her obtain authority for an investigation from ABC’s directors. The GC adds she got further support from the fact that the Securities and Exchange Commission was considering a “noisy withdrawal” at the time, which would have required attorneys to publicly quit a representation if a client failed to respond to their reports of internal wrongdoing. “We are not a big company. This was my boss, our CEO,” says Austin. “It was very, very stressful.” In the end, her investigation was successful: Zenger and the company parted ways this winter. The CEO’s Questionable Purchases Trouble first surfaced last November. Current and former employees, as well as former business associates of Zenger, came to Austin with questions about the CEO’s purchase of software and furniture for the company’s Zurich office. ABC already had a Swiss office, but opened another in Zurich to accommodate Zenger, who is a Swiss national. He spent about a third of his time in Texas and the rest in Europe, Austin says. The GC says that when she quizzed her boss about the purchases, he tried to brush her off: “He got really angry and told me to stop wasting my time.” Zenger also told Austin she could no longer report to him, but to the company’s CFO instead. The GC says she wasn’t fearful of losing her job because she has an employment contract. Trying to figure out what to do next, Austin talked with outside counsel Richard Waggoner, a partner at Dallas-based Gardere Wynne Sewell, and Bryan Tate, chairman of the company’s audit committee. Both men urged her to investigate the claims against Zenger. Waggoner repeatedly defended Austin’s inquiry to the company’s directors, but maintains that his role was limited. “All I did was confirm [that Austin was] doing the right thing,” he says, adding that the new reporting requirements in Sarbanes-Oxley added heft to their position. Leaving In Stages ABC released the results of Austin’s investigation in a 10-K filed with the SEC in April. The company said that it had reason to believe that Zenger had authorized purchases of $240,000 in software and $154,498 in furniture and computer equipment from companies that could be “related” to him. The filing also states that Zenger has agreed to buy the software from ABC, which is withholding $245,000 from his severance pay until he makes the software available for an independent valuation. Zenger resigned as CEO in January, as chairman of the board in February, and as a board member in March, the 10-K states. Zenger could not be reached for comment. He has no telephone listing in the Dallas area. Austin says that the ex � CEO has been represented by Beat Marfurt, an attorney in Bern, Switzerland. Marfurt declined to answer questions about Zenger or confirm that he represents him. Tate, the new CEO at ABC, declined to comment on Zenger, saying that any information not included in public filings is “classified and confidential.” Tate says, however, that his “experience with Miss Austin is positive.” Peter Beare, ABC’s former chief operating officer, says that Austin “did her research with very limited help.” Beare left the company last year and is now a consultant in the securities industry. He adds, “Her tenacity, carefulness, and diligence to discover these things have saved the company from what could [have been] serious problems.”

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