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Of the 32 Silicon Valley companies publicly implicated in a backdating scandal that’s gained steam since the Wall Street Journal reported on the issue earlier this year, Wilson Sonsini Goodrich & Rosati has represented at least half on corporate matters at one time or another. That’s a reflection of the longtime dominance the firm has held in the technology sector, working for such storied clients as Apple Computer and McAfee Inc. Yet in an environment of widening regulatory and civil investigations over backdating � which has snared both Apple and McAfee � Wilson’s position as the Valley’s go-to lawyer could present the firm and its clients with some tricky conflicts issues. Take the Brocade situation, where the company’s ex-CEO Gregory Reyes is facing imminent indictment by federal prosecutors in San Francisco. Brocade’s continued use of Wilson in the SEC probe � and also in private civil suits � has raised eyebrows, especially because earlier this year Reyes told Business Week that the advice of Wilson’s Larry Sonsini, who was on Brocade’s board of directors, led to the options problems. Reyes’ assertion caught the attention of many defense lawyers because it appeared that Reyes was invoking an advice of defense counsel. The company probably couldn’t, or wouldn’t, raise that defense at the SEC if Wilson Sonsini is continuing to represent it. Brocade CEO Tyler Wall said Wednesday that he didn’t feel it appropriate to discuss the issue. And Reyes’s lawyer, Skadden, Arps, Slate, Meagher & Flom partner Richard Marmaro, also wouldn’t comment. In some of the civil backdating cases, Wilson clients have begun looking elsewhere. Sanmina-SCI, a Wilson client where Wilson Sonsini partner Mario Rosati sits on the board � and which is facing an SEC probe � has hired Heller Ehrman to handle derivative suits filed by a group of plaintiff firms. And Wilson Sonsini client KLA-Tencor, also facing government investigation, is using Morgan, Lewis & Bockius in civil litigation. It isn’t clear what firms Sanmina-SCI and KLA-Tencor have turned to for representation before the SEC. Wilson partners involved in the cases didn’t return calls seeking comment. But when it comes to Silicon Valley, Courtney Dorman, a spokeswoman for the firm, said the firm has “significantly more market-share than anybody in Northern California, by volume of our client base.” As for Wilson’s multiple roles with Brocade, “we have a process to review conflicts, to ensure that we comply with the ethical responsibility to our clients.” Dorman declined to provide further detail. But the advice a company got at the time of the options grant could be a big factor in SEC probes. Speaking only in general, Helane Morrison, the San Francisco SEC district administrator, said that among the factors her agency would consider is “whether a company consulted with outside counsel in making its decisions and that would be in the company’s favor if they did get outside counsel’s advice.” Adds Peter Henning, a law professor at Wayne State University Law School in Detroit and an expert in white-collar criminal law: “To have the law firm continue to represent the company before the government could be problematic and could involve a conflict of interest.” Deborah Rhode, a professor at Stanford Law School and an expert in legal ethics, agreed in general that conflicts could be a problem in such a situation. “The firm has a vested interest in defending the propriety of its own conduct and advice,” she said, “and that could impede disinterested advice in settlement negotiations.” But Rhode points out that there also could be advantages to holding onto a firm in such a situation, especially if a company � as has happened in most of the backdating cases � chooses a firm other than its normal counsel to conduct an independent investigation of alleged wrongdoing. “There are economies of scale in having lawyers that are fully aware of all the events leading up to the charges and fully aware of the details of the transaction,” Rhode said. Defense lawyers, and at least one general counsel in the Valley willing to discuss the issue, tend to agree. “From the get go, we didn’t get a sense that we should change law firms,” said one prominent general counsel who declined to be identified. “This is not Enron hiring Vinson & Elkins, who set up the partnerships, to opine about whether those partnerships were correct.” But a different Silicon Valley general counsel offered a good reason to switch: “You can imagine a situation where a law firm is perceived as having the potential to be an adverse witness.” Law professor Henning said he didn’t think conflict issues would be as significant in civil cases as they are in the regulatory matters. And several lawyers pointed out that most criminal cases will focus on individual executives, rather than companies, also lessening the potential for conflicts. Defense lawyers in the backdating mess say that as more facts about each case come out, companies will have to re-evaluate their choice of counsel. And, the lawyers say, facts in the cases are likely to vary enough from one company to another that some will likely retain Wilson while others drop the firm. As that process progresses, litigators and transactional lawyers are looking at it with a mix of dread and opportunity. “Insurers are asking if you have backdating issues and shareholders are asking,” said Skadden, Arps partner Kenton King. “It gives me no joy as a lawyer to have to deal with this.”

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