CPAs Grill Prosecutor, Partner on Backdating

Can you think of a more intimidating crowd than a roomful of accountants? They know all the issues, understand all the details, and can assail you with a stumper at any point in the question-and-answer session.

Still, Melinda Haag and Michael Wang — a defense lawyer and federal prosecutor, respectively — made an admirable showing Tuesday surrounded by the panoramic windows of the Carnelian Room, where they talked about stock option backdating before a group of CPAs. And while there’s been no shortage of verbiage on the subject of backdating over the past six months, the event put on by the California Society of Certified Public Accountants’ litigation section brought up some new questions, perhaps because of the crowd.

Haag, a partner at Orrick, Herrington & Sutcliffe and a former federal prosecutor, talked about the difficulties lawyers face when defending clients against the SEC, Justice Department, IRS and plaintiff lawyers. For one thing, there are the parallel criminal and civil proceedings by the DOJ and the SEC that can put your client in a tough situation. Haag recounted a case where one of her clients in the many backdating investigations invoked the Fifth Amendment under questioning by an SEC lawyer out of concern for the possible ramifications in the ongoing criminal probe. The SEC lawyer’s next question: “Are you invoking your Fifth Amendment right because if you answered the question you would incriminate yourself?”

Haag said she advised her client not to answer that question, either.

As the discussion moved toward the finer points of backdating and the main course —fish, and plenty of it — one CPA’s question gained approving nods (“I can’t believe I didn’t think of that one.”) from the crowd: The statute of limitations for fraud is five years, and could therefore preclude backdating cases at the height of the tech boom from prosecution. But what if an options recipient cashed in on sketchy options at a later date — or does so in the future. Could that lead to charges?

“That’s an interesting question,” Wang said. “Stay tuned.”

They will, given that the cornucopia of internal corporate investigations spurred by the options scandal promises to keep the forensic accountants extremely busy.

But with all that work, Haag said — along with the tax work that promises to pop up with the IRS probes — people involved in the cases shouldn’t let government regulators get in the way of who they really need to worry about.

“The scariest one is the U.S. attorney’s office,” she said, gesturing toward Wang, the head of the San Francisco U.S. attorney’s white-collar section and a member of the group investigating option backdating. “He seems like such a nice guy, and is a very nice guy — who will very nicely bring criminal charges.”

Wang didn’t deny that. “I’m just your friendly neighborhood federal prosecutor,” he said.

Justin Scheck



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