The Year of Living Dangerously for GCs

Editor’s Note: This post comes to us from Jonathan Hayter of the National Law Journal.

The National Law Journal recently published The Year of Living Dangerously for GCs, which highlights the unprecedented increase this year in federal prosecutions of general counsels of major corporations. In the first nine months of this year, the article explains, the government initiated fraud proceedings against nine general counsels–including in-house advisors at Apple and Comverse, among others.

Several of the cases, including the recent indictment of Kent Roberts, formerly General Counsel at McAfee, involve prosecutions of attorneys allegedly involved in relatively recent options backdating scandals. In others, however, the government has alleged more traditional wrongdoing–such as in the case of Kevin Heron, former General Counsel of Amkor Technology, who was recently indicted for insider trading.

The increase in prosecutions of general counsels has given rise to concern that the attorney-client privilege between management and in-house counsel has been seriously compromised. Executives are unlikely to trust an attorney, the article argues, who may later be pressured to disclose privileged information or else face federal prosecution. (As the article notes, a Senate bill currently under consideration would bar federal agencies from conditioning prosecutorial leniency on disclosure of privileged information. Andrew Tuch recently posted here about a report by former Delaware Chief Justice E. Norman Veasey indicating that the in-house bar remains concerned about the implications of federal prosecutions on corporate privilege even following the issuance of the McNulty Memorandum.)

Though Congress declined to pass legislation last year that would have required corporate attorneys to disclose evidence of wrongdoing, SEC Chairman Christopher Cox has made clear that he expects general counsels to play a more substantial role in disclosing corporate fraud. Thus, the article suggests,this year general counsels face in a difficult quandary: management is disinclined to tell them anything, but if fraud is later revealed the government is likely to assume that they knew about everything.

The full article is available here.

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One Comment

  1. Broc Romanek
    Posted Friday, October 26, 2007 at 10:00 am | Permalink

    The SEC’s enforcement division also is targeting general counsels – see my September blog listing the actions brought this year (so far) against GCs at http://www.thecorporatecounsel.net/blog/archive/001473.html