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To most of Corporate America, Mark Belnick was a sideshow. No $6,000 shower curtain graced the former Tyco International Ltd. general counsel’s bathroom, and he was not even a guest at, much less the host of, a certain $2 million Roman orgy-themed party on the island of Sardinia. In February 2003 Belnick was accused by the Manhattan district attorney’s office of stealing a little over $30 million in unapproved bonuses and loans from Tyco, a fraction of the $170 million allegedly stolen by his bosses, former Tyco chairman and chief executive officer Dennis Kozlowski and former chief financial officer Mark Swartz. But within the legal community, Belnick was always the main event. His trial was a major test of how far prosecutors could go in trying to hold in-house lawyers responsible for corporate crimes. And Belnick was not just any lawyer; he was an attorney who, as an outside counsel, seemed to embody the very best the legal profession had to offer. He was a former prot�g� of the legendary litigator Arthur Liman and an ex-senior partner at the elite New York firm of Paul, Weiss, Rifkind, Wharton & Garrison. Did his indictment show that even the most reputable lawyers were susceptible to corporate corruption? Or did it mean that even the most respected attorneys could become the target of overzealous prosecutors? On July 15, following two months of testimony in New York trial court and after less than five days of deliberation, a jury found Belnick not guilty of all charges. The GC had faced charges of grand larceny, securities fraud, and falsifying business records. If he had been convicted of the top count of grand larceny alone, he could have faced as much as 25 years in prison. The verdict was a thorough rejection of the prosecution’s argument that Belnick, who was Tyco’s general counsel between 1998 and 2002, had been paid vast sums without the approval of the conglomerate’s board of directors because he helped Kozlowski and Swartz cover up their own alleged thefts from the company. The trial of Kozlowski and Swartz on similar charges ended in mistrial in April and is scheduled to be reheard early next year. (Both men have pleaded not guilty.) But even though Belnick was cleared of criminal wrongdoing, it’s not certain that he did nothing wrong. The GC’s actions in several instances — his failure to report the questionable conduct of Kozlowski and Swartz to Tyco’s board of directors, to familiarize himself with the minutes of board meetings and company bylaws, to check if he was eligible for certain bonuses and loans, and whether, once granted, those monies were properly disclosed in SEC filings — raise questions as to whether he fulfilled his duties to Tyco as a lawyer and acted in accordance with the profession’s ethical standards [see Asked but Not Answered]. Belnick’s chief defense lawyer, Reid Weingarten of Washington, D.C.’s Steptoe & Johnson, has no doubt that issues of professional responsibility will again be aired in the upcoming civil cases against his client filed by the Securities and Exchange Commission and Tyco. The lower evidentiary standard of a civil trial may make a defense slam dunk tougher the second time around, but Weingarten can’t resist a little exultation. “It’d be a lot tougher if we hadn’t won the criminal case,” he says. The acquittal was a resounding triumph for Weingarten, whose strategy focused on presenting Belnick, 57, as an honest lawyer doing the best he could under difficult circumstances. According to Weingarten, Belnick was extremely well paid, earning some $35 million in salary, bonuses, and loans alone in the four years he was at the company, because he did outstanding work and because it was Tyco’s culture to reward performance lavishly. Nonetheless, throughout his time at the conglomerate, Belnick remained a lonely outsider who became a convenient scapegoat for some board members. “He literally shows up, and no one was there,” says Weingarten, recalling Belnick’s testimony about his inauspicious first day at Tyco. “He’s the general counsel of this huge corporation with no support.” In that regard, Belnick was a far cry from the only general counsel to be tried on criminal charges in recent years. Weingarten defended Rite Aid Corp.’s Franklin Brown, who was a 40-year veteran and consummate insider at the pharmacy chain. In 2003 a federal jury in Pennsylvania convicted Brown of witness tampering, conspiracy and obstruction of justice for participating in a scheme to artificially inflate the company’s earnings and share price. Brown is still waiting to be sentenced. A tall, slightly rumpled figure with a characteristically upturned shirt collar, Weingarten does not conform to stereotypes of defense lawyers as sharpies favoring double-breasted suits. A former trial attorney with the U.S. Department of Justice’s public integrity section who has defended Clinton-era Agriculture secretary Mike Espy on ethics charges and is next set to defend former WorldCom Inc. CEO Bernard Ebbers, Weingarten commands the courtroom’s attention with the manner of a charismatic and energetic professor. Weingarten had a formidable opponent in Manhattan assistant district attorney John Moscow. One of the most senior members of District Attorney Robert Morgenthau’s staff and one of the office’s chief fraud experts, Moscow was the architect of all the Tyco prosecutions. In Moscow’s version of events, Belnick behaved unethically right from the beginning. The prosecution alleged that after he joined Tyco in 1998, the GC took almost $5 million in loans from a company program designed for employees leaving Tyco’s New Hampshire offices and relocating to New York. Belnick used the money to purchase and renovate an apartment on Manhattan’s West Side, even though he was already living in nearby Harrison, a suburb in Westchester County. His old office at Paul Weiss was just blocks away from Tyco’s New York office. (Weingarten says Belnick will repay all of his Tyco loans, pending the outcome of the civil litigation.) Belnick also benefited from Kozlowski’s largesse in 2000, say prosecutors. That year, outside lawyers at Wilmer, Cutler & Pickering, hired to represent Tyco in an SEC inquiry into the company’s accounting, had alerted Belnick to documents showing that Kozlowski had allegedly used a company loan program — intended to allow employees to pay taxes incurred when they exercised restricted stock — for personal items like jewelry and vacation expenses for his then girlfriend. According to the prosecution, Belnick agreed to hush up the documents in return for a special bonus of cash and stock worth up to $17 million. (The defense countered that Belnick earned every penny of the bonus. In their testimony, former Wilmer Cutler partner Lewis Liman, now a partner at New York’s Cleary, Gottlieb, Steen & Hamilton, and Wilmer Cutler’s William McLucas praised Belnick’s role during the investigation, crediting him with many smart and gutsy decisions. The SEC investigation ended without formal charges in July 2000.) In August 2001 Belnick received another sweetheart deal, according to prosecutors. Kozlowski gave the GC a second relocation loan to buy a $10 million dream house in Park City, Utah, where he would open a Tyco office. Tyco board members claimed they never knew any of this, and, to Moscow, the very size of the payments to Belnick indicated that something was up. If the GC was part of Kozlowski’s scheme, that would explain why Belnick continually failed to disclose his loans and compensation on the company directors and officers questionnaires used to prepare proxy statements. The GC was trying to conceal ill-gotten wealth. At the trial, the lineup of prosecution witnesses included several former Tyco directors, who testified that they never approved Belnick’s compensation package and never delegated authority to Kozlowski to do so. Moscow also made sure the jury heard a good deal about what Belnick could, would, and should have done as an honest and upright general counsel. The prosecution’s expert witness, Thomas Lee Hazen, a professor at the University of North Carolina School of Law, stressed that a general counsel’s duty is to the board of directors, not the CEO. A general counsel who learns of possible improper conduct by the CEO has a duty to report that information “up the ladder,” to the board, Hazen said. To Weingarten, it was clear that Moscow had a standard for a perfect lawyer or general counsel to which he insisted on holding Belnick. “Moscow seemed morally offended by Mark’s lawyering,” Weingarten recalls. “That was a large part of the battle.” The idea that Belnick was not upholding his duty as a lawyer and as a fiduciary of the company was the linchpin of the prosecution’s circumstantial case. If the jury accepted that, they would be open to the possibility that Belnick had gone on to actively commit criminal acts. The defense’s aim was to show that, under the circumstances, Belnick acted reasonably. Weingarten divided up the task of attacking the prosecution’s case among his team. He took on the directors. Mark Hulkower, a fellow partner at Steptoe, tried to elicit sympathetic testimony from the Wilmer Cutler lawyers and challenge Hazen. Local counsel Robert Katzberg of New York’s Kaplan & Katzberg cross-examined witnesses about Belnick’s relocation loans. One of the key points Weingarten wanted to get across to the jury was the depth of Belnick’s isolation from Kozlowski and the rest of the Tyco brass. It was undisputed that Kozlowski had been prepared to fire Belnick barely a year after the lawyer’s arrival. Apparently responding to criticism of Belnick from other Tyco employees, Kozlowski had even set aside a reserve to buy out the general counsel, according to testimony at the trial. The idea that Belnick would scheme with a boss with whom he had no rapport was ludicrous, Weingarten argued. On the other hand, it was not ludicrous that Belnick had enemies who were out to get him, some of whom sat on the board of directors. In his opening statement, Weingarten had argued that one director in particular, Joshua Berman, had been hostile to Belnick from the day the GC arrived. Then a partner at New York’s Kramer Levin Naftalis & Frankel, Berman had been the chief legal authority at Tyco before Belnick showed up. Weingarten depicted Berman as haughty and resentful toward Belnick, whom he regarded as a threat to Tyco’s favored relationship with Kramer Levin. (Berman testified that his feelings about Belnick were not motivated by personal animus, but by conversations with Kozlowski and others who felt Belnick was not working out. Berman said Belnick never discussed the Kramer Levin issue with him, and he only learned Belnick thought it was a conflict after he left the firm’s partnership in February 2000.) Under cross-examination by Weingarten, Berman admitted that he had his own deal with Kozlowski for $360,000 a year in compensation above and beyond his director pay, in part for his role as a legal adviser to the company. Berman did not recall whether he had ever received board approval for the arrangement. Moreover, Berman’s insistence on the stand that he was a lawyer on Tyco’s staff who did not report to the general counsel reinforced the idea that Belnick was dealing with an operational disaster when he joined Tyco. Weingarten sought to depict all of the board members who testified as self-interested rubber-stamp-wielders who were happy to let Kozlowski run the company the way he saw fit as long as Tyco’s stock continued to soar. “Going to the board in real time, in the Kozlowski era, what would have been the point?” Weingarten wonders. All of the directors who testified left the Tyco board by 2003, following the appointment of new CEO Edward Breen. Berman continues to work for some Kramer Levin clients as a retired partner, though the firm no longer handles a substantial amount of work for Tyco. The centerpiece of the defense case was Belnick himself, who took the stand for several days. Under direct examination by Weingarten, a mild-mannered Belnick described his isolation at the company and his difficult relationship with Kozlowski, who frequently undercut him in his struggle to carve out a role at the conglomerate. Belnick said Swartz was also lionized as a financial whiz. The GC said on the stand that he understood from the beginning that the CFO and the finance department were in charge of securities filings, a responsibility that he, as a litigator, was happy not to assume. He said he never saw any reason to doubt the word of Kozlowski — that the CEO could essentially set and get board approval for the general counsel’s compensation package. Likewise, Belnick did not second-guess Swartz’s assurances that he was eligible for the relocation loans and that those loans did not have to be disclosed in directors and officers questionnaires. Moscow was relentless on cross-examination, repeatedly asking Belnick why he had not sought advice from outside lawyers on one issue after another. The prosecutor challenged Belnick on whether he had familiarized himself with the corporate bylaws, board meeting minutes, and actual terms of the various loan programs. Belnick, who had been genial on direct examination, often seemed self-righteous and petulant under cross-examination. He groused to Moscow that he “did not go on an archaeology expedition backward into Tyco history” when he was general counsel. In the end, the jury apparently did not hold his failure to do so against him. Weingarten says there were tough moments during Belnick’s cross-examination, but overall he was confident about the outcome from the beginning. “I didn’t have a single bad day on this trial,” he says. In an interview shortly after the verdict, Moscow said the legal profession has been injured by Belnick’s conduct and his acquittal. If Belnick had been tried by a true jury of his peers, Moscow says, the outcome would have been very different. “My own thought is that if there were 12 general counsel on the jury, this would have been a lot simpler and a lot quicker,” he says. According to Moscow, other general counsel would have seen through Belnick’s testimony on cross-examination that he neglected to read the minutes of board meetings. They would have been bewildered that Belnick failed to double-check the rules on receiving such enormous amounts of money. “They would have seen that he was simply not credible,” Moscow says. But to Weingarten, the rejection of the prosecutor’s view of a lawyer’s duties is one reason his client’s acquittal is cause for other lawyers, especially in-house counsel, to celebrate. And he describes countless e-mails he’s received since the verdict from beleaguered lawyers and general counsel concerned about overreaching prosecutions against lawyers. “The response has been overwhelming,” he says. “There was a palpable feeling out there that we needed this.” Weingarten says he and his client are ready for the civil cases, though he doesn’t rule out the idea of peace breaking out beforehand. Tyco will be represented in its civil suit by David Boies’ firm, Boies, Schiller & Flexner, which began the internal investigation that quickly led to Belnick’s firing in June 2002. The Tyco lawsuit, which goes further than the criminal case in alleging a conspiracy with Kozlowski, was filed a week later. “It will be very, very interesting to see what will happen,” Weingarten says. But if the case moves forward, Weingarten knows he will have to defend again the choices and decisions Belnick made as general counsel. If so, the in-house bar will again be watching closely. “This is a brave new world. You used to become a general counsel because you wanted to watch your kids play soccer,” says Weingarten, nodding to the stereotype of in-house lawyers as quality-of-life refugees from firm jobs. Now, he says, “it’s become the hardest job, the most dangerous place to be.” Anthony Lin covered the Belnick trial for Corporate Counsel‘s sibling publication New York Law Journal.

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