The Best Defense

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

Nevertheless, in some cases, considering the intricacies of many frauds as well as the layers of management involved, CFOs may truly not know about all of a company’s transactions. Lawyers often try to make that case. “There’s a predilection to say, ‘Oh, he was the chief financial officer; he knew everything,’ but that’s not necessarily true,” says Grand. In the McKesson case, for example, Brown says Richard Hawkins testified at length about his responsibilities as the CFO of a Fortune 50 company before answering questions about the allegedly improper activities at the health-care services and information-technology business. “He talked about the far-reaching geography and functions he supervised, the reports he received on a regular basis, the reporting structure,” recalls Brown. “The judge could understand at the end of the day that every issue might not come to his attention.” This testimony created the foundation for the defense that Hawkins was unaware of the decision made by managers at a subsidiary to backdate a $20 million contract.

Sometimes, however, the client’s involvement is all too clear. “In some cases, you’re doing damage control,” says Janis. “Before I began representing [WorldCom's Myers], he had basically acknowledged the accounting fraud to the internal investigators, the external auditors, and the board.” Like Buford Yates, Myers pleaded guilty and received a jail sentence of a year and a day. “No lawyer likes to have a client go to prison,” comments Janis. “But given the fact that he was in the middle of the fraudulent activity and that he had acknowledged it, it could have been a lot worse.”

In such situations, cooperating with prosecutors may be the best strategy for finance executives. In the WorldCom case, for example, former finance chief Scott Sullivan pleaded guilty to securities fraud after arguing his innocence for two years. His cooperation enabled the government to indict Ebbers, and he became the government’s star witness against his former boss. Sullivan, who estimated he spent some 400 hours working with prosecutors, likely received a double-digit reduction in his sentence due to his helpful and extensive testimony, says Stone (who was not involved in the case), despite the fact that Judge Barbara Jones called him the “architect” of the WorldCom fraud.

Similarly, the five former HealthSouth CFOs who pleaded guilty and testified against former CEO Richard Scrushy received relatively light sentences in part because of their cooperation, although Scrushy eventually won an acquittal. Meanwhile, Richard Causey, the former Enron chief accountant who recently pleaded guilty to a single count of securities fraud less than a month before his trial was scheduled to begin, now faces up to seven years in prison, with a possibility for a reduction to five years if the prosecutors determine that he has acted in good faith. For a defendant who had faced 36 counts of conspiracy, fraud, insider trading, lying to auditors, and money laundering, the deal looks quite a bit less risky than going to trial in Houston, Enron’s hometown.

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