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San Francisco federal prosecutors may have struck first in the government’s crusade against stock options backdating, but it’s a case developing in the Brooklyn U.S. attorney’s office that will give the first glimpse into one of the most pressing questions: How does it affect the lawyers? At some point this month � and probably within two weeks � the U.S. attorney’s office for the Eastern District of New York is expected to level criminal charges against former executives of Comverse Technology, said several people familiar with the investigation. “The U.S. attorney’s office has been making noise that they are at the end of their rope,” said Robert Morvillo, a New York white-collar specialist whose recent clients include Martha Stewart and AIG ex-CEO Hank Greenberg. He and Keith Krakaur, a partner at Skadden, Arps, Slate, Meagher & Flom, represent former Comverse CEO Kobi Alexander. Alexander was one of three former Comverse executives who resigned in late April, after the company announced problems with the dating of stock options grants. He was joined by the company’s CFO and, significantly for the many attorneys wondering what their fate � or at least their exposure � will be, the company’s general counsel, William Sorin. Reached at his home Wednesday, Sorin declined to comment on whether he expects to be charged. Lewis Clayton, a white-collar specialist at Paul, Weiss, Rifkind, Wharton & Garrison who represents Sorin, also declined to comment, as did Linda Lacewell, the assistant U.S. attorney heading up the investigation, and lawyers for former CFO David Kreinberg. Morvillo, of New York’s Morvillo, Abramowitz, Grand, Iason, Anello & Bohrer, said Comverse’s problems should never have made it to the U.S. attorney’s office. “This should have been dealt with in a regulatory context,” he said. But lawyers watching the Comverse case said it’s of great interest for several reasons. For one, it’s the first to focus on an in-house lawyer, a dynamic expected in many backdating suits because general counsel at many companies had to approve individual options grants. “In old-school financial fraud, the lawyers are not involved” in the alleged wrongdoing, said Jahan Raissi, a partner at Shartsis Friese in San Francisco with several backdating clients. “This one’s different.” While the Brocade case brought the first charges, the Comverse case may prove more typical of the pace at which federal prosecutors move in the 80 or so backdating investigations. The San Francisco U.S. attorney’s office had been investigating Brocade for more than a year before charging two of its executives last month. But Comverse’s troubles didn’t come to the fore until after backdating became the crime du jour this past spring. In March, Comverse joined the flotilla of companies with options problems when it announced it might have to restate earnings. According to public statements, the company formed a special committee that hired an outside law firm � Dickstein Shapiro in New York � to investigate. As a result, the three executives were officially on their way out on April 28, and the internal investigation quickly made its way into the hands of federal prosecutors. On May 4, the Brooklyn U.S. attorney’s office, along with the SEC, issued subpoenas to Comverse, indicating that its investigation was well under way. As the case has progressed, Comverse decided to use Dickstein Shapiro � rather than its normal outside firm, Weil, Gotshal & Manges � to talk with prosecutors. More recently, court filings show Dickstein has replaced Weil, Gotshal in the various civil suits filed over backdating. A Comverse spokesman said he couldn’t speak about the case, and Weil partner David Zeltner, the Comverse relationship partner, said he continues to represent the company. “We are outside counsel,” he said. “Dickstein Shapiro represents the special committee.” That’s a different strategy than what was seen at Brocade, which has stuck with its outside counsel Wilson Sonsini Goodrich & Rosati to represent it in talks with the government. Kathleen Bisaccia, the managing director of Kroll’s business intelligence division and a former San Francisco SEC manager, said the government pays close attention to a potential defendant’s law firm. “One of the paramount issues for the SEC � and I think the DOJ, although I can’t speak for them � is independence,” she said. “Do they have people without bias investigating them and representing them?” Of particular concern, she said, are cases where outside counsel may have advised a firm on issues like options grants. Having the same firm engage in talks with prosecutors, she said, could give the appearance of a conflict. “They may not have the best incentive to fully cooperate with the regulators because they may be worried about their own position,” she said.

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