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Ending more than 17 weeks of deliberation, U.S. District Judge Martin Jenkins on Monday acquitted former McKesson Corp. chief financial officer Richard Hawkins on all counts of securities fraud. Hawkins was indicted by the Northern District U.S. Attorney’s Office in connection with a stock scandal that resulted in $9 billion in investor losses. The San Francisco-based McKesson had announced accounting irregularities after it merged with HBO & Co. in 1999. Several criminal indictments, Securities and Exchange Commission actions and plaintiff suits followed. The case against Hawkins is part of a larger prosecution strategy that now could be derailed by Jenkins’ 37-page ruling. The judge simply didn’t buy the government’s case, finding not credible executives and other witnesses who testified against Hawkins. Lawyers expect at least some of those same witnesses to testify in the upcoming trials of two others indicted in connection with the scandal: Charles McCall, who was HBOC’s chief executive officer and chaired McKesson’s board of directors, and Jay Lapine, who was HBOC’s general counsel. Jenkins pointed out that although witnesses fingered Hawkins, accusing him of working on a scheme to boost McKesson’s numbers, federal prosecutors didn’t present much in the way of corroborating phone records or other documents. In addition, the witnesses had leniency deals with the government and a history of questionable business dealings themselves. The government’s star witness was Albert Bergonzi, who was HBOC’s president and CEO. Had Jenkins believed him and the others, it could have been a slam-dunk: Bergonzi testified that at one point Hawkins congratulated him for his role in a plan intended to help McKesson hit its quarterly earnings number. Jenkins called one witness’ testimony “contrived.” He even rejected one of the government’s business and accounting experts. Hawkins’ defense attorneys had attacked the government’s use of cooperators from the get-go. “This isn’t the only way they can prosecute these cases,” said Walter Brown Jr., a partner at Orrick, Herrington & Sutcliffe who helped defend Hawkins. Prosecutors “need to critically analyze cases before indictment. And when they don’t have corroborating information, they need to think twice.” Brown, a former Assistant U.S. Attorney, was joined on the trial team by another former assistant, Melinda Haag, as well as William Alderman and Nancy Harris, all of Orrick. Prosecuting the case were Timothy Crudo, who in 2003 left as co-chair of Latham & Watkins’ Bay Area litigation department to join the U.S. Attorney’s Office, and Haywood Gilliam. In a statement, U.S. Attorney Kevin Ryan said he was disappointed and thanked the trial team. Hawkins’ one-month trial began in January, and evidence concluded Feb. 25. The defense lawyers agreed to forgo a jury trial, Brown explained, because of the complexity of the accounting that came into play. In addition, the defense worried about public opinion of executives, several of whom went on trial across the United States earlier this year. Another witness against Hawkins was David Held, who served as HBOC’s CFO. Despite the testimony from Held, Bergonzi and Bergonzi’s wife, Jenkins said he believed Hawkins, who took the stand on his own behalf to discuss events that took place in April 1999. That was when Bergonzi and others worked on a deal to artificially inflate McKesson’s numbers. According to Bergonzi, he and others hatched a scheme to illegally add $20 million to McKesson’s bottom line by making it appear that a contract negotiated in April went on the books in March. McKesson’s accounting team eventually discovered the fraud. The scandal forced the giant health care services company, which is based in San Francisco, to restate its earnings. McKesson’s stock price crashed. Bergonzi has pleaded guilty and faces up to about 10 years in prison. He has not yet been sentenced. Jenkins will handle the sentencing, as well as the trials of Lapine and McCall. The case is U.S. v. Hawkins, 04-0106.

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