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The U.S. attorney’s office for the Northern District of California has decided to retry two former California Micro Devices executives whose convictions were thrown out for trial errors. A spokesman for the office said Friday that former chief executive officer Chan Desaigoudar and former treasurer Steven Henke would be retried for stock fraud, illegal trading and conspiracy. The case was one of the highest-profile criminal stock fraud cases brought in recent years. Speculation about what U.S. Attorney Robert Mueller III would do surfaced when the pair’s three-year sentences from U.S. District Judge Vaughn Walker were vacated in August by the 9th U.S. Circuit Court of Appeals. The Department of Justice is famously reserved about challenging appellate court panel decisions, and retrying the case presents unique problems for prosecutors. The decision comes after the government unsealed two indictments in recent weeks charging former executives at McKessonHBOC and Informix of unlawfully manipulating company books. Now, the office will be juggling three huge criminal cases that could send shudders throughout Silicon Valley. Although Mueller, time and again, has stressed that white-collar crime will not go unpunished, he has also acknowledged that such cases are time- and money-consuming. Furthermore, the two government prosecutors who handled the Cal Micro case, Robert Crowe and Pamela Merchant, have since left for private practice. Crowe was the third lead prosecutor on the case, the previous two having been hired by Wilson Sonsini Goodrich & Rosati. None of the defense attorneys could be reached before press time. Desaigoudar and Henke were convicted in 1998 for pulling off a securities fraud estimated at $40 million. Judge Walker, however, gave them only three-year sentences, saying the case was different from other fraud cases. The defendants appealed to the 9th Circuit, which ruled that Walker should have granted a request by defense attorneys to withdraw from the case. The attorneys argued they could not cross-examine a former co-defendant who turned state’s evidence without violating attorney-client privilege. The former defendant had participated in joint defense meetings. The government had also appealed Walker’s sentencing decision. When the convictions were overturned, however, the question was rendered moot. The closest the 9th Circuit came to ruling on the merits of United States v. Henke was declining to overturn the conviction on the grounds that there was insufficient evidence to support a guilty verdict on the insider trading charges. The court ruled a reasonable jury could conclude there was. On September 28, the U.S. attorney’s office announced a 17-count indictment naming Albert Bergonzi, 50, and Jay Gilbertson, 40, in an alleged scheme to inflate the financial picture of their company, HBO & Comp., before it was bought by San Francisco-based McKesson Corp. Mueller called the case a “poster child for the devastating effect of fraud by corporate managers.” Last Thursday, the office announced it had obtained an indictment against Walter Konigseder, accusing the former top official of Menlo Park-based Informix of approving sham transactions and lying to company auditors. In all three cases, the companies were forced to restate their financial picture, leading to precipitous stock price drops on the market — in McKesson’s case $9 billion. The Securities and Exchange Commission filed separate actions in each case. Last year, it also took action against two former outside auditors of Cal Micro, accusing them of not following proper accounting standards. Class action securities cases were also filed against each company. The McKesson suit could settle for as much as $1 billion. The Cal Micro class action has already settled for more than $15 million.

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