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San Francisco�The vast rewrite of corporate governance law that gave rise to a new practice specialty for corporate lawyers in 2003 is doing the same for some litigators. In the wake of the Sarbanes-Oxley Act, securities lawyers and white-collar criminal defense attorneys have become the latest go-to specialists to handle inquiries into company procedures or to field complaints by whistleblowers. Enacted in 2002 in response to massive corporate scandals like the one at Enron Corp., Sarbanes-Oxley has company directors and executives combing through their operations and bringing in outsiders to evaluate anything questionable. “There’s a much different atmosphere now,” said Bradford Lewis, a litigation partner at Mountain View, Calif.’s Fenwick & West. “There’s an increased sense of urgency, an increased sense of detail and an increased attention to making sure everything is done correctly.” A ‘niche business’ White-collar criminal defense lawyers like Lewis are brought in because of their expertise in questioning employees and studying internal documents and e-mails. Securities lawyers also know their way around balance sheets. Lewis is now spending half of his time investigating possible instances of corporate fraud; overall, his practice is up by 30%. Before Sarbanes-Oxley went into effect, he spent about 25% of his time on such matters, he said. “In the last year to year-and-a-half, I would attribute most of my business to the increased focus on corporate governance issues,” Lewis said. David Bayless, a partner at San Francisco’s Morrison & Foerster and a former Securities and Exchange Commission lawyer, said the specialty can help generate a new line of work. “It can create a niche business,” Bayless said, “where a firm or set of lawyers can become known as people who conduct independent investigations.” But lawyers say the work isn’t the best way for a firm to try to land new long-term clients. In most cases, the company wants lawyers with no existing ties to handle investigations. “I’d be lying to you if I didn’t say it at least gives you some visibility,” said Lewis, “but the whole purpose of having somebody independent of the company is so that the independence isn’t compromised.” And it’s usually the board of directors doing the hiring, Lewis said. “Generally your mission is to represent the board and audit committee, so you’re not necessarily going to have an opportunity to make relationships with people at the company. You’re almost adverse to people at the company, because you’re looking at things they did.” Still, representing boards is a business in itself. Bayless has fielded roughly one new investigation per month since July. Prior to Sarbanes-Oxley, he would get one such request in six months, he said. “People are more skittish, but there are more complaints,” Bayless said. “Employees will make a complaint internally that there is some wrongdoing at the company and you’d better look at it.” More whistleblowers In conducting investigations, litigators are finding they’re interviewing more whistleblowers, who are granted broad protection under Sarbanes-Oxley. The whistleblowers have also proven to be useful in weeding out potential problems, Bayless said. “You might initially think it’s some bad-apple salesman and then all of a sudden you start digging and you find the e-mails,” Bayless said, adding that such paper trials generally point to an institutional problem rather than a rogue employee. Ethics Point, a Portland, Ore.-based firm that maintains corporate hotlines, fielded a 35% increase in reports over the past year because of Sarbanes-Oxley. The tips range from benign gripes to allegations of serious fraud and theft, said David Childers, Ethics Point’s chief executive officer. “The majority of reporting falls into what we would consider traditional theft, fraud and abuses centered on [a] particular industry,” Childers said. In the case of technology companies, workers report concerns over the theft of intellectual property, potential breaches of confidentiality, vendor collusion or falsification of quality-assurance test results, Childers said. Only about 20% of the reports prove to be frivolous or unfounded, despite the commonly held belief that many reports come from disgruntled employees trying to start trouble, Childers said. “You tell people they’re supposed to turn people in, and by golly, they’ll turn people in,” said Diane Holt Frankle, a Gray Cary Ware & Freidenrich partner who led her firm’s efforts to decipher Sarbanes-Oxley. “People feel they should be reporting to let someone else decide if it’s really a serious violation.” Frankle said problems have occurred because companies were cutting corners or using outdated policies. Sometimes, the lawyers come back and say there’s a problem that has to be disclosed to regulators, while other times it becomes a personnel matter. Some litigators say the work is a welcome change. “I find it rewarding because if there is a problem, you can take both corrective and prophylactic action,” said Steven Schatz, a partner at Palo Alto, Calif.’s Wilson Sonsini Goodrich & Rosati. “It’s good when you can help solve a problem; it’s that simple.”

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