Securities Lawyer Blog

Client representation is front and center of the life of a lawyer and these days representation often includes media strategy and planning. But in one case, media strategy is currently front and center in the retrial of a former executive.

As the retrial of Gregory Reyes, former CEO of Brocade Communications Systems, Inc., begins, the issue of attorney client privilege is part of the prosecution's strategy. The Department of Justice is pushing the court to allow statements made in a press release by Reyes' former counsel, Richard Marmaro. Marmaro's statements were intended to help his client, but the government would like to use the statements as evidence against him.

In the first instance, Marmaro said that his client did not backdate options. But at trial he argued that although backdating did occur, it was not illegal. Also at issue are the files kept on Reyes by the public relations firm that was representing him.

United States Federal District Court Judge Charles Breyer who sits in the Northern District of California presided over the first trial and will also preside over the retrial. The first trial ended in conviction but was thrown out by the Ninth Circuit after it was alleged that the government knowingly made false statements in closing arguments.

The critical issue with regard to waiver is whether Reyes provided information to his lawyer knowing that that information would become public. Reyes' new lawyers have filed a motion to quash the subpoena that was issued to the PR firm, saying the statements made by counsel were necessary and that information received by the PR firm should not have to be produced. They argue counsel was responding to the intensity of media created by the government at the outset of the case.

Judge Breyer has indicated he might well allow Reyes' former attorney Marmaro's quotes and other information from the PR firm into evidence. According to the Judge, "an argument could be made that it's not a confidential communication." If the Judge Breyer allows this into evidence, it could damage the defense case especially when coupled
with the potential testimony that the company's finance department had knowledge of the backdating.

The Securities Lawyer Blog has posted on the recent BofA waiver issue. The development of the law as regards attorney-client privilege is something to watch carefully. The Reyes matter is instructive in the care that must be taken in creating and implementing a media
litigation strategy as well as the use outside of outside firms to support these efforts.

Resources on the Reyes trial and retrial can be found at law.com

Continue reading "Talking Points Or Taking Points? Privilege Waiver on the Line." »

The Securities Lawyer Blog has posted twice on the Broadcom backdating case -- and now we have news from the Securities and Exchange Commission (SEC).

Reviewing the history of this matter, we first posted in September 2009 that the company settled the derivative action for $118 million and again in December 2009 when Judge Cormac Carney entered an acquittal and dismissal against former executives.

Last week, the SEC announced its intention not to proceed with its civil action, which had been stayed at the United States Attorney's request pending the criminal trial.

The SEC's initial civil action was filed in May 2008, in the United States District Court for the Central District of California. In that case, the Commission alleged that Henry T. Nicholas III, Henry Samueli, William J. Ruehle, and David Dull, who were current or former officers of Broadcom, had been involved in a scheme to backdate stock options over a period of several years.

Judge Carney entered an acquittal in Ruehle's criminal trial last December and dismissed the stock option backdating indictment against Nicholas. The judge expressed deep concerns about the U.S. Attorney's conduct in the matter. He also dismissed the SEC's complaint without prejudice. The Commission was discouraged from pursuing its action.

Last month, after the SEC sought clarification of the dismissal order, the court indicated that the SEC's action would not survive summary judgment given the evidence presented in Ruehle's criminal trial and the preclusion of testimony of Broadcom's former vice president of human resources. After consideration, the Commission announced last week its intention not to proceed further.

Federal prosecutors have filed a notice of appeal for the dismissal of the case against Nicholas. Some have questioned the wisdom of Broadcom's settlement in the derivative action given these dismissals. But it appears, at least for now, that the storm is over for Broadcom and its former executives, $118 million dollars later.

Related Web Resources

To read more about the Broadcom case go to the Orange County Register.

Continue reading "SEC Backs Off Broadcom Backdating Case -- $118 Million Later" »

The Securities Lawyer Blog has followed the Bank of America's troubled settlement with the SEC in its acquisition of Merrill Lynch. The matter is finally moving towards resolution. Maybe.

Last week, the Am Law Daily Blog reported that BofA has settled with the SEC. Again.

Both the SEC and BofA are hopeful that this time Judge Rakoff will approve the settlement.

As previously reported, the original settlement of $33 million in fines was dismissed by Judge Rakoff as "trivial" for BofA's alleged failure to notify shareholders prior to its acquisition of Merrill Lynch that it planned to pay billions of dollars in employee bonuses. The Judge was not pleased that ultimately the shareholders would bear the burden of the fines.

The new settlement proposal carries substantially more in fines and includes specific oversight provisions and apparently a distribution plan that might please the judge.

According to the SEC, the new settlement deal includes a payment by the bank of $150 million in fines and will strengthen its corporate governance and disclosure practices. In this deal, the SEC requires the bank implement specific remedial measures over three years. These include, but are not limited to:

-- An independent auditor to audit internal disclosure controls;

-- Requires the CEO and CFO to certify a review of annual and merger proxy statements;

-- Retain disclosure counsel to report to the Board's Audit Committee;

-- Adopt a "super-independence" standard for the Compensation Committee prohibiting acceptance of other compensation from the bank;

-- Maintain a Consultation Committee consultant that would meet super-independence criteria; and,

-- Prominent publication on the bank's website of incentive compensation principles.

The bank has also agreed to turn over some formerly privileged documents between the bank and its counsel. The larger issue of privilege waiver - based on an alleged drafting error -- is still being litigated in separate shareholder cases.

Troubles remain as New York Attorney General Andrew Cuomo announced last week that his office has filed a civil suit against BofA and three former BofA executives. The suit charges BofA with disclosure violations in the Merrill acquisition.