TheCorporateCounsel.net

Last Tuesday, the NY Times ran this article about the testimony given at a hearing into whether federal prosecutors improperly pressured KPMG to cease paying the legal fees of former employees indicted for selling illegal tax shelters. The hearing before Judge Lewis Kaplan of the US District Court of New York focused on the so-called “Thompson Memorandum,” written by then US Deputy Attorney General Larry Thompson. The Thompson Memorandum contains nine factors that prosecutors could consider when determining whether to indict a company – one factor was whether the company advanced legal fees to employees caught up in an investigation. [This Memorandum is discussed within some of the law firm memos posted in the “Attorney-Client Privilege” Practice Area].

It appears that Judge Kaplan has questioned the constitutionality of the prosecutor’s policy regarding advancement of fees. According to this article, “When a prosecutor, Marc Weinstein, said the document written in 2003 by Larry D. Thompson, a former deputy attorney general, did not advise companies that they risk indictment by paying the legal fees for all employees, the judge cut him off. Kaplan said if what Weinstein said was accurate, then the Department of Justice in Washington chose poor wording of the document and ”it’s time they start all over again because that’s sure not what they’ve said to the defense bar.”

The defendant’s pre-hearing brief in this case – US v. Stein – gives some pretty interesting (albeit one-sided) insights into how potential criminal defendants may be pressured by the U.S. Attorney’s Office into cutting off the advancement of legal fees to employees. And here is an amicus curie brief filed on behalf of the SIA, Bond Market Associationn, Associaton of Corporate Counsel and the US Chamber of Commerce which questions the legality of the DOJ’s position in the Thompson Memo that companies under investigation should deny legal fee advances to “culpable” individuals. Both of these pre-hearing briefs are posted in the “Indemnification Arrangements” Practice Area.

There often is tension in situations like this – where companies can be put under a lot of pressure to deny protections to individuals who have not been convicted (at least, not yet). Just review some of the recent cases like Homestore in Delaware, where the court dismissed efforts by a company to avoid paying the fees of an executive who really was “culpable.” And then there are the very valid concerns about the massive legal fees incurred by indicted executives who “eat up” the D&O coverage of other directors and officers who are less culpable (for example, as noted in the WSJ Law Blog, check out how large the Hollinger legal bills were: well over $4 million each for Conrad Black and Richard Pearle!).

This is why companies need to address these tricky situations before they arise, within employment agreements and the like. Get some negotiating and drafting tips in the “Clawback Provisions” Practice Area on CompensationStandards.com.

Understanding the EU Prospectus Directive

Tune in tomorrow for the NASPP’s webcast – “Understanding the EU Prospectus Directive” – to learn, among other topics:

– Which stock plans are most likely to be subject to the directive and what exemptions are available
– How to comply with the directive, including how to file a prospectus in your home member state and passport it to other EU countries
– How the directive intersects with local laws and the EU countries where compliance is most problematic
– What to do if you discover that your stock plans are in violation of the directive

A Refresher on CEO/CFO Certifications

We are still getting plenty of queries on CEO/CFO certifications, so I thought it was a good time for a refresher with this podcast with Andy Thorpe of Morrison & Foerster (and a former SEC Staffer who worked on the 302 rulemaking), who provides some insight into how to handle CEO/CFO certifications, including:

– Can a CEO/CFO vary the language at all in a 302 certification?
– What about a 906 certification?
– What happens if a CEO/CFO is hired after a period end? Can they skip the certification until they are on the job longer?
– What other questions are being asked about CEO/CFO certifications?