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Like a stone tossed in the water, the stock options backdating scandal has caused far-reaching ripples, bringing work to many types of lawyers. While white-collar defense and securities lawyers have been flooded with work, they’re not the only ones. Labor and employment lawyers have been brought on to handle the firing of high-profile executives tarnished in investigations. Insurance recovery lawyers have had their hands full with companies and their insurers fighting over who foots the backdating bills. And lawyers versed in international stock option laws have even carved out a niche advising companies about what to do when they’ve granted backdated options to foreign employees. “It’s maybe the last thing they started to consider when they were going through the backdating issues,” said Valerie Diamond, a San Francisco Baker & McKenzie partner in the firm’s global equity services practice. Although the scandal broke last year, Diamond has gotten busy counseling companies on the overseas implications of misdated options over the last six months. She says the half-dozen such matters she’s now handling take up 40 percent of her time. (She declined to name her clients.) What’s at stake � often to the chagrin of companies � is that they owe taxes and penalties in foreign countries where they granted options to employees, Diamond said. That’s because in many countries, employers and employees enjoy tax breaks on stock options granted at fair market value, but not on backdated or discounted ones. Going back and paying all those taxes can be costly, especially in higher-tax countries. “In some of the countries there’s a lot of money at stake,” Diamond said. “It’s not good news for many companies.” Many of the lawyers from the firm’s 60-lawyer global equity services practice � who normally help companies roll out equity-based compensation programs worldwide � have felt the global backdating ripples. For instance, Baker tax lawyers from Canada to Singapore have been busy parsing local tax law as it relates to stock options. Overall, the practice group is handling between 12 and 15 matters, Diamond estimates. The work comes from firm clients and referrals from Silicon Valley law firms who don’t have the global reach of Baker, which has 3,400 lawyers in 34 countries around the world, she said. LABOR LAWYERS: ALL FIRED UP Blame for bad options practices often lands on top executives, whose heads end up on the chopping block. That leads companies to call in labor and employment specialists to work out the details. Brendan Dolan, a labor and employment partner in Morgan, Lewis & Bockius’ San Francisco office, has his hand in six to 10 matters involving disputes between officials and their companies over employment agreements. (Dolan declined to name the companies he represents.) “There are some that are percolating along in this area where a termination decision has been made,” Dolan said. “And there are some where the company has found out what’s going on, and I’ve helped them kind of plot out where they are on the chess board.”
Optional Reading

Read The Recorder‘s roundup of the stock-option backdating scandal. There won’t be a test later … but there might be a subpoena.

Defining a fair termination and figuring how much money disgraced executives deserve are usually at the heart of the disputes. “The challenge, in some of these cases, has been looking at what contractual or other remedies or other relief might be available to an employer,” he said. While companies normally face quick assaults from angry ex-employees, Dolan said those caught up in the backdating scandal are playing a waiting game. Former executives might not want to be put under oath in an employment case when they still face criminal charges, he said. “When it comes to getting a couple of hundred thousand dollars or even a million dollars, those stakes pale in comparison with a threat to your personal freedom,” Dolan said. Dolan expects to see more employment disputes as the backdating drama continues to unfold, especially between companies and lower-ranking officials who believe they may have been wrongfully scape-goated and fired over the situation. YOU’LL PAY FOR THIS … With companies shelling out lots of cash for all those lawyers, disputes over who pays the bills � insurers or policy holders � has brought work to insurance attorneys. Heller Ehrman’s 60-lawyer insurance group has handled about 10 claims for companies looking to make their insurers pay up, said David Goodwin, a longtime Heller partner. It’s just a small percentage of the firm’s insurance work overall, but it’s brand-new for the lawyers. “It has been an area that appeared in the last couple of years and has had some interesting issues,” Goodwin said. (He declined to name the clients.) None of Heller’s clients’ claims have ended up in litigation, though some have ended up in mediation, he said. The disagreement is normally over executives who received ill-gotten gains. “The typical dispute revolves around exclusions in standard insurance policies for either compensation or for receiving of money to which a party is not entitled,” he said. Goodwin said he expects the claims to grow over the coming year but to fall off after that since companies ought to have learned their lesson. Before it all dries up, he expects at least a few showdowns over big insurance claims. While all types of lawyers swarmed over the stock option mess once it exploded, some remember it in its infancy. P. Garth Gartrell, an executive compensation lawyer with Greenberg Traurig, said he counseled his first client on backdating in 2005, though he declined to name them. At first, he said it was only lawyers like him on the scene. “When you’re trying to get your arms around whether you have an issue, at a certain point all the different disciplines of what we do in the executive compensation field come into play,” he said. Back then, he continued, the thought of even getting a securities litigator involved was a novel idea. “I thought getting litigators involved was an outlier,” Gartrell said, laughing. “I cer-tainly wouldn’t have turned to a litigator three years ago to ask them about backdating.”

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