By all appearances, Steven Woghin was a lawyer at the top of his game. After years in government service, the former Justice Department attorney had worked his way up to a comfortable six-figure salary and the chief legal job at software maker Computer Associates International Inc.
But this fall, the facade came crashing down, as Woghin pleaded guilty to criminal securities fraud and obstruction of justice charges. Prosecutors said he backdated sales documents and urged employees to lie to investigators of a $2.2 billion accounting fraud at the Long Island, N.Y., company. Woghin, 57, now faces a maximum 25-year prison sentence.
Woghin's guilty plea came after regulatory crackdowns over the past year against lawyers at companies where fraud was discovered, including Rite Aid Corp., Symbol Technologies Inc. and Warnaco Group Inc. .
Prosecutors and enforcement officials at the Securities and Exchange Commission have warned that they will avidly pursue lawyers and accountants, who are supposed to help companies hew to the rules, if they bend them instead. They're also pushing companies and their attorneys to reveal more information about wrongdoing than ever before, sometimes urging companies to waive attorney-client privilege or face prosecution.
Legal experts said the SEC will play the lead role in policing lawyers because criminal charges against them can be extremely difficult to prove without clear evidence of personal enrichment or obstruction of justice. The SEC, which files civil charges, faces a lower burden of proof.
Yesterday at Washington's Ritz-Carlton hotel, a group of current and former SEC leaders met to assess the agency's efforts to crack down on lawyer misconduct. Lawyers have undergone heightened scrutiny since the December 2001 collapse of Houston's Enron Corp. -- a failure that resulted, in part, from secret, debt-laden business partnerships created with the approval of in-house lawyers and prominent law firms Vinson & Elkins and Kirkland & Ellis. In the past two years, the SEC has brought about 30 cases involving lawyers, officials said yesterday. SEC enforcement chief Stephen M. Cutler told an audience in September that more cases were on the way against lawyers who helped clients bilk mutual fund investors and attorneys who conducted sham internal investigations.
Responding to complaints from defense lawyers at yesterday's American Bar Association meeting that the agency was moving too aggressively, deputy enforcement director Linda Chatman Thomsen said, "I'm delighted that you're all worried. It's part of the job."
She stressed that the agency is not targeting lawyers alone, but instead it is closely examining the role that all executives and advisers played in corporate accounting blowups. The SEC is looking for evidence about what they disclosed to the public and how they structured deals, among other issues.
Experts say many of the corporate abuses of the 1990s, from excessive executive compensation packages to tax shelters to off-books deals, happened with the know-how, and blessing, of legal advisers.
"If your lawyer isn't going to help you out, it's going to be very hard to do . . . much more so than without accountants," Boston University law professor Susan P. Koniak said in an interview.
Koniak, who specializes in legal ethics, argues that the spike in enforcement against lawyers has not changed behavior in most legal suites because cases the government has filed involve gross examples of personal excess or coverups, rather than a series of incremental actions with which corporate lawyers might better identify.
But there is little disagreement that regulators are more interested now in allegations of lawyer misconduct than ever before.
Lawrence Byrne, a former federal prosecutor, said in an interview that in the 1980s and early 1990s, the government usually avoided serving subpoenas on corporate lawyers, reasoning that their communications with executives were protected by attorney-client privilege. Now, Byrne said, investigators are urging companies to waive that privilege in order to avoid criminal prosecution and huge civil fines.
"In my view, that's a policy shift that's here to stay," said Byrne, a partner at White & Case in New York.
"Uncertainties about what is or is not adequate cooperation by a company with an SEC or DOJ investigation can put an in-house or outside lawyer in a difficult spot," said Robert J. Giuffra Jr., a partner at Sullivan & Cromwell in New York. "When the second-guessing starts, the questions can be all about the lawyers."
SEC staffers are keeping tabs on how much companies cooperate, a prospect that former enforcement director William R. McLucas yesterday called "somewhat unnerving."
Debate over the strength of government enforcement efforts comes at a time when the SEC has postponed action on one of the more controversial reforms stemming from the 1990s financial scandals.
The proposal, known as "noisy withdrawal," would require lawyers to blow the whistle to someone outside a company if they obtain evidence of fiscal wrongdoing and officials inside the company fail to respond properly to the complaint. Some legal groups argue that the proposal would force them to choose between their duty to their clients and to the SEC rules. They also worry that executives will hesitate before seeking advice from a company lawyer about sensitive issues because the lawyer might later reveal those confidences.
Current rules require lawyers to report wrongdoing to people inside the company, such as independent members of the board of directors. Some scholars also interpret the rules as allowing lawyers to reach out to regulators if their concerns are not taken seriously. In at least two cases this year, the rules have worked as designed, according to a speech this year by SEC General Counsel Giovanni P. Prezioso.
In one case, the law firm Akin Gump Strauss Hauer & Feld resigned after Mexican broadcast client TV Azteca failed to heed advice to disclose a deal between the company and its chairman. A letter from the law firm describing the dispute eventually was leaked to a newspaper after the firm had resigned.
Prezioso said that in another case, a lawyer made it all the way to one of the SEC's regional offices to blow the whistle before corporate managers called him on his cell phone and agreed to take seriously his concerns that two board members had criminal records. The board members later resigned.