The Best Defense

In today's high-stakes legal environment, top white-collar attorneys are ready to defend the CFO.

The surge in finance-related cases, often involving many millions of dollars of shareholder value, has been accompanied by increased public interest — and anger. “We’re living in this environment where it’s like you’re defending a nobleman in the French Revolution, and the guillotine is outside and the mob is howling,” says Weingarten. Keker agrees: “Since Enron, there’s been a huge amount of hatred directed at CEOs and CFOs.”

Accounting maneuvers that were once praised in the financial press as earnings management are now attacked in the courtroom as fraud. “We’re seeing cases of accounting improprieties that are being prosecuted criminally today that would not have been prosecuted that way 10 years ago,” says David Schertler, a founding partner at Washington, D.C.-based Schertler & Onorato LLP. In 2002, Schertler defended WorldCom’s former director of accounting, Buford Yates, against securities-fraud charges. Agreeing to cooperate with investigators, Yates pleaded guilty and received a prison sentence of one year and one day.

It could have been worse for Yates, as prosecutors are seeking tougher plea agreements and longer jail sentences for white-collar defendants. “Suddenly, all people want to do is put chief financial officers in prison,” says Charles Stillman, who defended Tyco’s Swartz against fraud and larceny charges. “That’s the game du jour.”

Cram Sessions

To have a shot at winning this game, defense attorneys have to digest complicated financial matters in a hurry. “Often these cases rise and fall on complex accounting issues and your ability to understand them,” says Brown, who studied the fine points of revenue recognition and the accounting rules regarding reciprocal transfer, or rights of return, for the McKesson case. “There is no substitute for immersing yourself in the GAAP literature and mastering it.” Brown has taken classes designed for lawyers who practice in finance-related areas, and says his firm has brought in representatives from the Big Four accounting firms to conduct seminars.

Few top attorneys have accounting or finance degrees, yet they must be able to parse the transactions at issue in a given case. “You have to know them backwards and forwards,” says Dan Webb, a partner at Chicago’s Winston & Strawn LLP who was named the country’s best white-collar criminal lawyer in a poll of his peers (see “Cream of the Crop” at the end of this article). “Then you figure out the best and most straightforward explanation as to why it’s not fraud.”

Still, defense attorneys know there are limits to their financial expertise. That’s why outside experts form a key part of any CFO defense, says Michael DeMarco, a partner at Kirkpatrick & Lockhart Nicholson Graham LLP in Boston. “I learned a long time ago that if you don’t actually work in accounting every day, you’ve got to hire a competent consultant or forensic accountant to work with you,” he says. Some attorneys will use a team of accountants to help them get an initial grasp of the issues in a case; and if a case goes to trial, they may call on other experts, often academics, to take the stand. (All of the Big Four firms have forensic-accounting divisions available for hire, and there are smaller boutiques that specialize in the field.)

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