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This time, the alleged crooks wear Bruno Maglis instead of Nikes. Their weapons of choice are calculators, not guns. A victory will echo outside the courtroom, but along Silicon Valley’s Page Mill Road, not Queens’ 116th Avenue. The last time Leslie Caldwell tried a case in an arena that her boss, the U.S. attorney, said was of crucial importance, it was 1993. Then her boss was Zachary Carter, who had vowed to crack down on neighborhood gangs and drugs in Brooklyn, Queens and Long Island. Now, it’s Robert Mueller III, who has made it a priority to keep securities fraud in check in the explosive San Francisco Bay Area economy. Caldwell won her case for Carter, sending the leadership of the menacing “Supreme Team” gang to prison and rescuing the Baisley Park housing project in Jamaica, N.Y., from a typhoon of violence. Caldwell would go on to win several gang-related RICO cases and wipe out the last vestiges of New York’s Chinatown crime lords. She eventually was named head of the Brooklyn-based U.S. attorney’s newly created violent criminal enterprises unit. In a town that loves its law enforcers, Caldwell’s work was noticed. The New York Times wrote a 1,500-word feature about her. Lately, expectations are again swirling around the veteran prosecutor and a newly created six-lawyer unit she heads. In Mueller’s avowed war on securities fraud, Caldwell is his general. And the battlefield is the granddaddy of all securities fraud suits, U.S. v. Bergonzi et al., 00-505. A win by the straight-talking 43-year-old from the suburbs of Pittsburgh, Pa., could signal a new era of aggressive prosecution of company officials who play fast and loose with investor money, when traditionally such cases have been the exclusive province of private lawyers. Caldwell can’t talk about the case, but acknowledges its symbolic power. “A few big securities fraud prosecutions will send a big message,” Caldwell said. “That’s an important case,” said David Bayless, a partner at San Francisco-based Morrison & Foerster and former head of the Securities and Exchange Commission’s San Francisco office. “You’re sending an extra message. It’s not just the SEC suing them.” The message, of course, is that executives who “cook the books” to keep up with the demands of the marketplace in a white-hot — but cooling — economy may pay for their actions with their freedom. A HUGE FRAUD CASE In Bergonzi, two former executives of Georgia-based health-care software firm HBO & Co. are charged with massive fraud in connection with HBO’s merger with San Francisco health care giant McKesson Corp., a Fortune 100 company. “It’s one of the biggest financial frauds ever,” said Helane Morrison, head of the San Francisco office of the Securities and Exchange Commission. McKesson’s market value fell more than $9 billion when the company announced in April 1999 that it was investigating possible accounting irregularities at HBO. Several executives were ousted in the wake of the investigation, including the two named in the criminal indictment, Jay Gilbertson, 40, and Albert Bergonzi, 50, both former co-presidents of HBO. But shouldn’t this case, with complex allegations of back-dated contracts and side letter agreements, be left to a bespectacled and bow-tied prosecutor with a background in accounting instead of violent gangs? Not really, say those who know Caldwell. “Leslie has, I think, a good sense of judgment about what needs to be done and what can get done later,” said Valerie Caproni, Caldwell’s boss in her later days with the Brooklyn U.S. attorney’s office. Caproni now heads the Pacific Regional Office of the SEC. Caldwell’s new boss, Mueller, shares the assessment. “Securities fraud cases can get bogged down in all the paperwork,” Mueller said. “It’s helpful to have someone who can seize an opportunity in the course of an investigation and move a case along.” Caldwell, typically, keeps it uncomplicated. “It’s fraud,” she said. “It’s the same basic animal.” And that’s why she came to San Francisco two years ago. “I … thought there were really good securities fraud cases out here,” she said. WORKING HER WAY UP After getting her law degree from George Washington University, Caldwell went to work for the Wall Street firm Cadwalader, Wickersham & Taft. She spent more than three years there before taking a job with the DOJ, working her way up through general crimes to more sophisticated criminal RICO cases. Her first major case was thrust upon her when the lead prosecutor was reassigned. She won. By the time she left Brooklyn, Caldwell had returned to financial markets, investigating corrupt brokerage houses and mob ties to Wall Street. Caldwell applied for a work detail in San Francisco based largely on the opportunity to work with Mueller, whose reputation in the DOJ is stellar. She was named as head of the economic crimes division and tapped to lead the newly created securities fraud unit in January. The unit has brought several successful cases so far, but everything so far pales compared to McKesson. In announcing the indictments, the heads of the San Francisco offices of the FBI, U.S. attorney and the SEC held a rare joint press conference in September. With the recent economic slowdown, it is easy to forget the stories of ludicrous wealth around the Bay Area. For much of the year, it seemed as if there were a new economy “paper millionaire” at every dinner party; communities debated whether to allow homeowners to build markedly oversized “McMansions” on tiny lots; and a cottage industry developed to show party-crashers how to find the most lavish dot-com soirees, where they could eat, drink and be merry to their hearts’ content — all on someone else’s dime. Mueller compared the region’s economy to a boomtown atmosphere. Caldwell shares that perspective. “It was such a gold-rush mentality that it couldn’t be real,” she said. “It quickly became apparent to me, and also to Bob, that securities fraud was a big problem out here.” The investigation into McKesson was already under way by the time Mueller announced he was restructuring the office to include not only Caldwell’s unit, but a Computer Hacking and Intellectual Property (CHIP) unit in San Jose, Calif. The securities fraud team is believed to be only the second in the country. The other one is in Manhattan. The recent economic slowdown won’t diminish the unit’s mission, Mueller said. The pressure to maintain expectations in lean times may provide just as much opportunity for fraud as the pressure to keep up with a booming economy. “I think we’ve seen in the past that there [can be] an incentive for those affected by the downturn to cut corners,” he said. “And when that goes over the line, it can become criminal.” In fact, a recent panel of private securities fraud lawyers from both sides of the bar predicted that 2001 would be a banner year for securities fraud litigation. (Although it was a meeting of the private securities bar, few criminal cases have arisen without a private securities suit having been filed first.) Wilson Sonsini Goodrich & Rosati partner Boris Feldman said that with January will come a period of financial restatements by companies unsurpassed in recent history. “A bloodbath,” he warns — and this from a defense lawyer. That makes Caldwell’s job of sifting through SEC data in search of criminal conduct all the more important. “The SEC relationship is huge,” Caldwell said. “Almost all of our securities fraud cases come through them.” The number of investigations coming to the San Francisco SEC office has gone up in recent years. Morrison of the SEC said her enforcement staff grew 25 percent last year; there are now 22 investigating attorneys and accountants. “There are a lot of companies in this area that are growing fast and pushing hard to meet analysts’ expectations, and their accounting techniques have not caught up,” Morrison said. So why haven’t there been more criminal indictments? Most admit that, traditionally, the relationship between the prosecutors and the regulators in San Francisco hasn’t always been the best, although it improved throughout the 1990s. The cases can also gobble up time and resources. That’s where someone like Caldwell, who by all accounts can separate the wheat from the chaff and push a case to its end, comes in. Mueller said that, in part, the securities fraud unit was created to help establish closer ties with the SEC, resulting in a more efficient operation. “We are trying to eliminate some of the delays that meant, in the past, that the cases have dragged on longer than we would have liked,” Mueller said. Caldwell will also call Morrison or other investigators to share information — items she’s read in The Wall Street Journal, for example. Caldwell also said she is getting more tips reported directly to the office. While prosecutors in New York have developed a reputation for going after securities fraud on Wall Street, the tradition hasn’t developed on the West Coast, home to many new economy companies. And the cases on the West Coast also present unique challenges. Caldwell said securities cases in New York often involve third parties rather than actions taken by corporate officers themselves. It’s easier to break up a boiler room operation or nail a crooked broker than it is to ferret out fraud on the balance sheets. Proving criminal intent, therefore, can be a thorny proposition. “It’s difficult,” Bayless said. A defense lawyer can say, “Maybe my guy made a bad judgment, but it’s not criminal. “If you’ve got to prove that you’ve got a crooked broker in some pump and dump scheme … that’s much easier than these cases.” Judgments on the success of the unit will take time, but Caldwell will apparently have plenty of practice. “I’m not exaggerating when I say that if the securities fraud unit had 15 people, they would all have work,” Caldwell said. Measuring success, however, won’t be as easy as in Brooklyn. When the Supreme Team was sent to jail, the murder rate in the Baisley Park projects dropped drastically. It would be nice, Caldwell said, if one day her team could have a similar impact — a reduction in the number of cases. But, she said, “It’ll take a while.”

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