X

Thank you for sharing!

Your article was successfully shared with the contacts you provided.
William McLucas was called as a prosecution witness last week in the New York criminal trial of former Tyco International Ltd. General Counsel Mark Belnick. And like the earlier appearance of his former Wilmer Cutler Pickering partner Lewis Liman, McLucas’ testimony may prove more helpful to the defense. McLucas, the D.C. securities lawyer hired by Belnick to handle a 2000 securities probe of Tyco, testified about an e-mail in which he credits the in-house lawyer with saving his bosses’ “ass.” Referring to a February 2002 e-mail, McLucas, head of the securities enforcement and litigation practice at Wilmer Cutler Pickering Hale and Dorr, suggested that Belnick’s work managing the SEC inquiry might not have been fully appreciated by former Tyco Chairman L. Dennis Kozlowski and former Chief Financial Officer Mark Swartz. Praising Belnick for possessing the right balance of “street-smarts, integrity, balls and lunacy,” McLucas concluded in his e-mail, “You should have a nice bottle of wine. They don’t pay you enough and I hope they appreciate you.” How much Belnick was legitimately paid is at issue in his criminal trial. After the SEC inquiry ended without formal charges in July 2000, Belnick received a $17 million bonus from Kozlowski. The Manhattan District Attorney’s Office says that bonus, as well as more than $14 million in interest-free loans, was stolen. In charging him with grand larceny, securities fraud, and several counts of falsifying business records, prosecutors allege Belnick received payments unauthorized by the board as a reward for helping Kozlowski conceal his own, much larger thefts from Tyco. The defense claims Belnick earned his pay through his performance, the chief example being the successful resolution of the SEC probe. Belnick worked closely in that investigation with a team of Wilmer Cutler lawyers led by McLucas, a former head of the SEC’s Enforcement Division and one of the nation’s most prominent lawyers in securities regulatory matters. WORRIES AT TYCO Much of McLucas’ testimony June 2 and June 3 touched on e-mail communications between him and Belnick. During the Securities and Exchange Commission investigation, McLucas alerted Belnick to a number of things that worried him about business practices at Tyco. Prosecutors claim such communications show that Belnick was aware of misconduct at the company. In particular, McLucas was concerned about Tyco executives’ use of various cash reserves to beef up cash flow in order to meet forecasts. In one e-mail sent to Belnick on May 26, 2000, McLucas stressed the need to change Tyco’s “culture.” In that e-mail, McLucas told Belnick of his concern that there “seems to be a genuine feeling that this sort of thing is not necessarily inappropriate.” “[T]he frequency of this kind of thing, along with the attitude that its OK, can really get these guys into serious trouble,” McLucas wrote in the e-mail. “Hopefully we will have some luck on this one as well and the SEC will never hear this kind of story so bluntly presented as here. If we escape this without a crippling broadside, the toughest challenge here seems to me to involve how one changes the culture.” But McLucas also says in the e-mail that he knows he’s “preaching to the choir” in addressing Belnick, a statement he bolstered in his June 3 testimony. “My sense from my dealings with Belnick in this situation is that he understood what I was saying and why I was saying it,” McLucas testified, adding that he thought that he and Belnick “shared the same view” of how seriously the company should be taking such issues. Much of McLucas’ testimony depicted Belnick and the outside lawyers at odds with Tyco management. McLucas said Wilmer Cutler lawyers found their steadiest ally in Belnick, to whom they would turn when they had trouble getting cooperation from other executives. McLucas also testified that he had been satisfied with Belnick’s explanation of how senior executives were using a company loan program as a “revolving credit arrangement.” McLucas had been concerned about company loans for personal items being charged to reserves meant to cover mergers and acquisitions costs. “If I had a concern that there was something about the loan program that was inappropriate, SEC or no, there would have been further questions,” he said, adding that his response at the time was: “The loan program is what it is. There was disclosure. Fine, next issue.” WILMER’S UNUSUAL ROLE Wilmer Cutler lawyers have found themselves in the unusual role of being key witnesses � for both the prosecution and the defense � in Belnick’s criminal trial. Twice during the last few weeks, Liman, who worked along with McLucas on Tyco’s SEC inquiry, took the stand at Belnick’s trial before Manhattan Supreme Court Justice Michael Obus. To prosecutors, e-mails sent four years ago by the two Wilmer Cutler lawyers to Belnick in the course of that investigation provide the proof that someone alerted the general counsel to the possibility that Kozlowski was abusing company loan programs and that other things might not be right at Tyco. It was largely to explain the background of some of these e-mails that prosecutors called Liman to the stand May 27. Liman is now a partner at Cleary, Gottlieb, Steen & Hamilton in New York. On March 23, 2000, Liman e-mailed Belnick to let him know that documents being readied for production to the SEC showed that $100,000 in vacation expenses for Kozlowski’s then-girlfriend and current wife, Karen Mayo, were being treated as part of a reserve meant to cover expenses relating to a recent merger. “[T]here are payments to a woman whom the folks in finance describe to be Dennis’ girlfriend,” Liman wrote to Belnick in a subsequent e-mail the same day. “I do not know Dennis’ situation, but this is the embarrassing fact.” Prosecutors claim Belnick failed to act on this information and, instead, acted to have it redacted. At trial, under direct examination by Manhattan Assistant District Attorney John Moscow, Liman testified that Belnick never followed up with him about the payment to Mayo. GETTING DEFENSIVE While the e-mails are certainly strong statements, the actual trial testimony of the Wilmer Cutler lawyers will likely prove mostly helpful to the defense. Indeed, after Moscow’s relatively brief direct examination, defense lawyer Mark Hulkower embarked on a lengthy cross-examination of Liman in which Liman continually highlighted smart and difficult decisions Belnick made in the course of the SEC investigation. “He told us that he wanted to respond right away to the SEC,” Liman testified about Belnick’s “very active” participation in the investigation. “He thought this should be taken extremely seriously. He didn’t want to spare any expenses at all in terms of the resources we devoted to this.” Liman particularly praised Belnick’s potentially risky decision to have former Tyco Chief Financial Officer Mark Swartz meet with the SEC. “It was my belief that the integrity of the company and therefore the likely progress of the investigation would turn to a substantial degree on what the SEC thought of the top financial officer,” he said. The SEC publicly announced it was calling off its investigation shortly after a successful meeting with Swartz. Liman suggested this was also a major accomplishment, noting that the SEC often left companies in the lurch by failing to make such announcements, even when it had ceased pursuing investigations. Liman also provided some support to defense theories that Belnick was being targeted by duplicitous board members led by Joshua Berman, a former partner at Kramer, Levin, Naftalis & Frankel, who had frequently clashed with Belnick over Tyco’s choice of counsel. Moscow objected frequently throughout the cross-examination and said during trial May 27 that Liman was following a “script” in which he fed “eager answers” to Hulkower. He also expressed irritation with Liman’s testimony praising lawyers at his former firm, which he described as a “mini SEC.” Moscow said Liman’s opinions of Wilmer Cutler and other firms were not proper subjects for cross-examination. Though both sides have highlighted the strong reputation of Wilmer Cutler’s securities practice, the defense has a stronger interest in playing up the prestige of lawyers and firms specifically hired by Belnick. Steptoe & Johnson’s Reid Weingarten, who is defending Belnick, noted in opening arguments that McLucas was the “gold standard” in securities matters and the last person someone would want around during a fraudulent scheme. Anthony Lin is a staff writer for the New York Law Journal, an American Lawyer Media newspaper, where this article first appeared.

This content has been archived. It is available through our partners, LexisNexis® and Bloomberg Law.

To view this content, please continue to their sites.

Not a Lexis Advance® Subscriber?
Subscribe Now

Not a Bloomberg Law Subscriber?
Subscribe Now

Why am I seeing this?

LexisNexis® and Bloomberg Law are third party online distributors of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® and Bloomberg Law customers are able to access and use ALM's content, including content from the National Law Journal, The American Lawyer, Legaltech News, The New York Law Journal, and Corporate Counsel, as well as other sources of legal information.

For questions call 1-877-256-2472 or contact us at [email protected]

 
 

ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2021 ALM Media Properties, LLC. All Rights Reserved.