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The noose is getting tighter around Jay Lapine, the ex-general counsel of HBO & Co. In October former president Albert Bergonzi pled guilty to charges of accounting fraud at the company. Bergonzi joins three other HBOC executives who have already struck deals with the U.S. Department of Justice. The officers are now cooperating with the government as it pursues charges against the remaining defendants, ex-GC Lapine and former chairman Charles McCall. An Atlanta-based software business, HBOC was forced to restate its earnings shortly after its 1999 acquisition by McKesson Corp., the San Francisco-based drug distributor. The merged business lost approximately $9 billion in market value after the restatement. At Bergonzi’s hearing, prosecutor John Hemann said that the fraud at HBOC involved scores of side deals that were never shown to the company’s auditors. In some cases customers were allowed to return unsold software, even though HBOC recorded the transactions as sales on its books. According to Hemann, the goal was to “ensure that the company’s reported earnings satisfied Wall Street forecasts regarding software sales.” In his plea, Bergonzi admitted that he wrote side deals and backdated contracts. The former president pled guilty to two charges of an 11-count indictment. Under federal sentencing guidelines, Bergonzi faces a prison term of 87-108 months. His lawyer, Joseph Russoniello of Cooley Godward, declined to make a statement after the hearing. So far the government’s HBOC probe has been a textbook example of its tactics in white-collar crime prosecutions. The U.S. attorney’s office in San Francisco first negotiated plea deals with lower-level executives and then started moving up the corporate ladder. Before Bergonzi, prosecutors won guilty pleas from Jay Gilbertson, HBOC’s former chief financial officer, and Dominick DeRosa and Timothy Heyerdahl, both former vice presidents. Off The Hook At First Lapine and McCall were not named in the original indictment of HBOC executives. Charges were added against them this summer [ "A Long Time Coming," August]. Neither prosecutors nor defense attorneys would say whether a plea deal is being considered for the two defendants. “Our current plan is to go to trial,” says Lapine’s lawyer, William Goodman of San Francisco’s Topel & Goodman. Michael Shepard, who represents McCall, says that his client also intends to go to trial. “Sounds to me like the people responsible for the wrongdoing have now pled guilty,” says Shepard, a partner at Heller Ehrman White & McAuliffe. Lapine and McCall will have to wait before getting their day in court, however. They are seeking access to a McKesson internal investigation that the company turned over to the government. The district judge hearing the HBOC criminal cases initially granted the defendants’ request. But McKesson filed an appeal with the federal circuit court, arguing that its report was only intended for the government’s eyes. Goodman says his client should be able to see the report. “It’s a matter of fairness and a matter of full disclosure,” Goodman says. Resolution of the appeal will likely delay any criminal trial for at least a year. Lapine is one of only a handful of general counsel to be indicted for their alleged role in company fraud. The select group also includes former GCs Mark Belnick of Tyco International Ltd. and Franklin Brown of Rite Aid Corp. Indeed, Lapine’s situation shares some striking resemblances with Brown’s [ "The Ties That Bind," October]. The Rite Aid GC was the last defendant left standing after several of his fellow executives pled guilty and began cooperating with the government. Brown also decided to go to trial, a gamble that he lost in September when a jury convicted him of multiple counts of conspiracy and obstruction of justice. Lapine undoubtedly hopes that his case turns out differently.

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