The Best Defense

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

But the greatest resource for a lawyer trying to master arcane accounting topics can be his client, say many top defenders. “A CFO, controller, or other finance person who’s well educated and may have significant experience at a Big Four accounting firm can be a tremendous source of information,” says Brown. “You should never underestimate what a client can bring to his own defense.”

N. Richard Janis, a partner at the white-collar litigation boutique Janis, Schuelke & Wechsler in Washington, D.C., says David Myers, the former WorldCom controller whom he represented, helped him quickly grasp the critical accounting issues in that case. “These people are sophisticated, intelligent, and concerned, and they are going to help you get your hands around the facts as quickly as possible,” says Janis. “Remember, the client has more than a rooting interest in the outcome.”

Making the Case

If mastery of the numbers were all that mattered, CFOs would defend themselves. Defense strategies emerge from applying a legal perspective to accounting, says Paul Grand, a partner at Morvillo, Abramowitz, Grand, Iason & Silberberg PC in New York who defended Timothy Rigas, former CFO of cable operator Adelphia. Top attorneys not only devise trial strategy but often come up with the business rationale or accounting theory for the defense as well. Says Grand, “We’re the ones who evaluate what sells in the courtroom.”

The first goal is to avoid appearing in the courtroom at all. If a client engages an attorney early enough in the course of an investigation, and if the facts support him, the attorney can try to convince a prosecutor not to bring a suit. In a recent example, Jeffrey E. Stone, a partner at McDermott Will & Emery in Chicago, former head of the firm’s white-collar practice and now head of the trial department, represented an insurance-company finance executive who was under investigation by New York State Attorney General Eliot Spitzer. “We lined up all the other cases where Spitzer had not prosecuted,” recalls Stone. “We were able to argue that our facts were less egregious than in the other cases. He had to decline to prosecute my client in the interest of fairness and consistency.” (Only a handful of people know the executive was close to being indicted.)

Inevitably, however, there will be cases in which charges are brought. And compared with other top company officials, the CFO is at a disadvantage in a fraud case: it’s much harder for him to convince a jury that he didn’t know what was happening with the company’s finances. Such a “Sergeant Schultz defense,” expected to be made by former Enron chairman and CEO Kenneth Lay, would have been very difficult for former CFO Fastow to have used credibly. Last December, just weeks before his trial was scheduled to begin, Lay publicly proclaimed his innocence, reiterated his position that “Enron was a strong, profitable, growing company even into the fourth quarter of 2001,” and blamed Fastow for the company’s collapse. (Jurors may not find this defense believable for Lay, either; Ebbers tried it without success.)

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