“The board is no longer immune from the prospect of criminal enforcement,” instructed John Coffee as a lead-in to his first question: “Is this a time in which corporate officials need to be more cautious in the statements they might make over the phone or in other communications?”
David Kistenbroker responded, citing the Galleon Capital case in which 21 people are accused by the Securities and Exchange Commission of making tens of millions of dollars in illegal profits by trading on nonpublic information. “Wiretaps are pretty tough—everyone is presumed innocent until proven guilty,” said Kistenbroker, noting that Galleon “is going to be broader than what we know of today.”
“I’ve seen the situation where the hedge fund is playing both sides of the aisle—the hedge fund is in on the debt side, helping capitalize and finance the company—and the guy down the hall is placed on the equity side—and they might have coffee or water- cooler talk,” said Kistenbroker as heads in the audience nodded in agreement. “It’s a danger for boards today and you may very well find yourselves calling for internal investigations.”
“All of us have gotten used to being very cautious of what is put in email,” added Stephanie Goldstein. She emphasized the need for corporate executives to utilize this “wake-up call,” reminding directors that anyone privy to non-public information should exercise caution.
“At what point do executive officers need to lawyer up?” asked Coffee. Lorie Almon emphasized the need to be proactive instead of waiting for the government to question a firm’s practices. “Resting on what used to work in the past is probably a very dangerous approach…forward thinking is the best approach a director can take right now.”
To that point, Almon pointed to a disturbing new trend of private plaintiff firms adding individuals to lawsuits in addition to corporations. “I do think there’s a trend, if not in the government, for private plaintiff firms to try to add directors—often you see motions to dismiss, but what we will have left is the ERISA case, the claims by stockholders that they no longer have the value they used to have and they want you [directors] in their lawsuits,” noted Almon.
“Stay informed, ask questions…what is in the pipeline and what the potential hazards [might be],” urged Goldstein.