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SAN FRANCISCO — Kent Roberts, the former general counsel of McAfee Inc., is the next likely casualty in the ongoing stock option backdating embarrassment. Lawyers familiar with the case say Roberts will probably be indicted in the next month — possibly before the new year — on charges related to backdating of stock option grants. The main issue in the case, the lawyers say, is an options grant Roberts himself received, which carries a date prosecutors suspect he altered. Roberts’ troubles first became public on May 30, when McAfee fired him at a rather early stage in the company’s internal probe of options grants. Reached last week, Roberts’ lawyer, Cooley Godward Kronish partner Stephen Neal, wouldn’t comment on prosecutors’ focus on his client. Roberts would be the first lawyer charged by San Francisco federal prosecutors in their broad options investigation and the second general counsel indicted nationwide. The first, former Comverse GC William Sorin, pleaded guilty last month to a conspiracy charge leveled by Brooklyn, N.Y., federal prosecutors. The Department of Justice and the Securities and Exchange Commission are investigating more than 100 companies to see whether they fabricated the dates on options grants. The practice would benefit employees by recording options awards at trading lows, thus maximizing profits when employees cashed their shares and sold them at much higher rates. So far, the only executives to be charged with options malfeasance worked at Comverse and, in California, at Brocade Communications. Two Brocade executives were charged by the Justice Department and the SEC last summer with backdating grants to nonexecutive employees. They are currently litigating their case in front of U.S. District Judge Charles Breyer. Although that case has been seen as a test case for the expected wave of options prosecutions — indeed, Breyer said so in a recent hearing — it differs from many of the other investigations because it doesn’t focus on grants to top management. TAKING IT FROM THE TOP That’s not the case with McAfee, which released a statement in May saying that company officials knew of “one episode involving the general counsel in 2000 that was improper.” It is not clear whether that statement refers to the stock grant on which prosecutors are focused. Before 2001, Roberts was the company’s vice president of legal affairs, not its GC. Plaintiffs’ lawyers have alleged in a civil suit that a 2002 grant of 100,000 shares to Roberts was improper. Lawyers familiar with the case say the initial stages of the prosecutors’ case will likely be limited to Roberts, though the SEC could file charges against other former McAfee officials. That wouldn’t be an entirely new situation for the tech company, which has had a checkered accounting past. In 2000 the company announced surprise revenue problems, leading to the chief executive’s resignation. An ensuing SEC investigation resulted in securities fraud suits against several executives and a $50 million fine for the company. And in 2004, McAfee — at the time known as Network Associates — saw its then-chief financial officer indicted in a revenue inflation scheme. More recently, the internal probe that prompted Roberts’ firing apparently got the federal prosecutors excited. The company announced in May it was talking to the SEC about options, and in June said it received an SEC subpoena. That was followed by an announcement that McAfee would have to restate its earnings due to options problems, and in August, the San Francisco U.S. Attorney’s Office sent the company a grand jury subpoena. Then in October, CEO George Samenuk resigned. His lawyer, Keker & Van Nest partner Elliot Peters, had no comment. McAfee itself is represented by Robert Feldman, a partner at Wilson Sonsini Goodrich & Rosati. He referred questions to a firm spokeswoman, who couldn’t be reached by press time. Lawyers for other executives also declined to comment, as did a spokesman for the U.S. Attorney’s Office in San Francisco.
Justin Scheck is a reporter for The Recorder , the ALM publication in which this article first appeared.

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