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Federal authorities Monday arrested David Klarman, the former general counsel of San Ramon-based U.S. Wireless, at his home in New York after he was indicted for securities fraud. He is expected to be transferred to San Francisco to face charges alongside U.S. Wireless’ former CEO, Oliver Hilsenrath, whom authorities are seeking to extradite from Israel. Both are charged in an alleged scheme uncovered in 2001 where the two men transferred company assets to shell corporations in the Virgin Islands that they controlled. Hilsenrath and Klarman were forced out of the company when the alleged fraud was announced. As a result, the company restated its financial reports and filed for bankruptcy. Klarman joins former HBO & Co. General Counsel Jay Lapine, indicted as part of a federal case involving the merger of HBO & Co. and McKesson Corp., as one of the few corporate lawyers ever to face a federal fraud indictment. Klarman’s California Bar membership has been inactive since around the time the fraud was revealed by the company. Both men face three counts of securities fraud. Hilsenrath faces 33 counts of wire fraud, while Klarman faces 16 counts of wire fraud. Klarman’s lawyer, Swanson & McNamara attorney Edward Swanson, could not be reached for comment. In addition to Monday’s indictment, the Securities and Exchange Commission also filed suit against the two men. According to the complaint, the pair secreted $3.2 million in company stock and stock options and $428,000 in cash in offshore entities. The SEC also alleges that the two men misled the company’s outside auditors. It was the auditor’s questioning of a transaction that led to an investigation by U.S. Wireless’ board of directors and eventually the dissolution of the company. Nasdaq delisted U.S. Wireless shortly after the revelation, and its assets were eventually sold to Trafficmaster USA Inc. “Today’s indictment alleges that the defendants betrayed the trust of U.S. Wireless shareholders by using the company’s money for their own personal gain,” Deputy Attorney General Larry Thompson said in a statement. “The Department of Justice remains committed to identifying and prosecuting those corporate executives who use the company’s coffers as their own.”

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