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In what the Justice Department calls its first-ever securities fraud indictment of a corporate general counsel, the U.S. attorney’s office in San Francisco added former HBO & Co. top lawyer Jay Lapine to a growing list of criminal defendants in the McKesson Corp. fraud case. Lapine, prosecutors allege, helped his company design and execute an elaborate plan to artificially increase revenues — sometimes by as much as 500 percent — prior to a merger with San Francisco-based health care giant McKesson. When the scheme was revealed, the combined company’s market value plunged $9 billion in a single day. Wednesday’s indictment highlights prosecutors’ growing interest in legal and accounting professionals who help corrupt executives engage in securities fraud. “Major corporate fraud cannot happen over an extended period of time without the complicity of accountants, lawyers and other professionals,” Deputy Attorney General Larry Thompson said in a statement. He said the case proves the government’s “commitment to follow the evidence wherever it leads — to not only those executives but also to those lawyers or other professionals who defraud the investing public.” In addition to Lapine, prosecutors also charged HBO & Co.’s former chairman of the board, Charles McCall. McCall also served briefly as chairman of the combined McKessonHBOC (now McKesson Corp). Lapine and McCall each face several counts of securities fraud. Lapine surrendered Tuesday morning to the FBI. He was released on his own recognizance after entering a not-guilty plea before U.S. Magistrate Edward Chen. McCall was out of the country and will be arrested when he returns. Charges were also added against Albert Bergonzi, HBOC’s former president who served for a time as a McKessonHBOC’s vice president. U.S. Attorney Kevin Ryan also announced that three other former high-ranking employees of HBOC have pleaded guilty and are cooperating with prosecutors. When asked why the indictments took so long — coming four years after the initial fraud — FBI special-agent-in-charge Mark Mershon said, “Very frankly, [the case] is advanced significantly when there is cooperation.” Helping prosecutors is McKesson’s internal investigation into the fraud. McKesson turned its report — a virtual road map to the fraud — over to the SEC and prosecutors. “I will say that McKesson has been fully cooperative, and that they have been told they are not a target of the investigation,” Ryan said. Ryan added that the investigation remains open. Also on Wednesday, the Securities and Exchange Commission added McCall to a list of 10 others involved in the case who were previously sued by the agency. Helane Morrison, director of the SEC’s San Francisco office, said her case is strong. “We did not sue Mr. McCall for his title, but for his conduct in the fraud,” she said. The SEC filed suit against Lapine in September 2001 and has an administrative proceeding against the company’s outside auditor, former Arthur Andersen LLP partner Robert Putnam. Prosecutors are alleging that Lapine did more than merely look the other way, but that he actively participated in a fraud to deceive investors. When asked to comment, Lapine’s lawyer William Goodman said, “Is that what they say? We say just the opposite.” Goodman, of San Francisco’s Topel & Goodman, said his client did not initially appear to be a target of the investigation, but the government’s interest has increased recently. “They reinitiated contact with us regarding the matter only within the last couple months,” Goodman said. Whether the attorney-client privilege becomes a factor in Lapine’s defense remains to be seen. “It’s hard to say,” Goodman said. “It may. That’s an interesting point. It’s something we’ll have to look into when we get into discovery.” Previously indicted defendants have been scuffling with prosecutors aver access to McKesson’s internal investigation. U.S. District Judge Martin Jenkins gave defense lawyers access to the report over the objection of prosecutors and McKesson itself, which argued that it was work product protected by the attorney-client privilege. Jenkins said that once the company turned it over to the government, the company waived the privilege. McKesson’s appeal is pending at the Ninth Circuit U.S. Court of Appeals.

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