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2 Scandals Hang Over Top Tech Lawyer

The head of a firm tied to Silicon Valley's stock options probe is also HP's outside counsel.

September 17, 2006|David Streitfeld | Times Staff Writer

PALO ALTO — He's hardly a household name, but Larry Sonsini is among the handful of people who can take credit for creating the technology powerhouse that is Silicon Valley.

For more than three decades, Sonsini has been the behind-the-scenes attorney guiding such companies as Apple Computer Inc., Netscape Communications Corp., Pixar Animation Studios Inc. and Google Inc. through the thickets of stock offerings and growing pains.

Along the way he became a local legend: the favorite consigliere, the power broker, the lawyer who thought like an entrepreneur.

"There's always a lawyer in every community who's the go-to person for wisdom, someone whom everyone wants a piece of. In Silicon Valley, it seems to be Larry Sonsini," said New York University law professor Stephen Gillers, a specialist in legal ethics.

Given his omnipresence, perhaps it's no surprise that Sonsini, 65, finds himself linked to two very different scandals roiling Silicon Valley.

First came the stock options mess. Federal regulators are combing the records of at least 30 Silicon Valley firms to see if they illegally rewarded employees with options to buy company stock at artificially low prices through a process known as backdating.

Sonsini's firm has done work for about half the local tech firms under investigation, and Sonsini was formerly a director at Brocade Communications Systems Inc., where two former executives have been charged with criminal wrongdoing.

Then there's the trouble at Palo Alto-based computer maker Hewlett-Packard Co. The HP board revealed that it spied on its members as well as on reporters by collecting their phone records. The disclosure triggered a criminal investigation and a shake-up on its board of directors.

Sonsini's role as outside counsel to HP is drawing intense scrutiny. Corporate governance experts were stunned by the disclosure -- reported by the Wall Street Journal and not denied by the company -- that he ran the board's emergency meeting last week.

"It raises new questions about his judgment as well as the judgment of the board members," said Gary Lutin, a New York investment banker and an advocate for shareholder rights.

"Even if you ignore the fact that he wasn't elected to anything, why didn't someone question the idea of turning their meeting over to the guy who'd told them not to worry about getting personal phone records without permission?" Lutin asked.

HP Chairwoman Patricia Dunn launched the investigation into the board last winter after discussions from a closed-door meeting were leaked to an online news service. At a board meeting May 18, she said director George Keyworth II was the culprit, and the board demanded his resignation.

Keyworth refused, but fellow board member Thomas Perkins quit in protest over Dunn's tactics.

E-mails obtained by The Times suggest that Sonsini didn't know about the board investigation at first. But he appears to have given it a thumbs-up once Perkins asked him about it in a series of e-mail exchanges.

The investigators, Sonsini wrote Perkins on June 28, "did obtain information regarding phone calls made and received by the cell or home phones of directors." He added that "the process was well done and within legal limits."

According to state Atty. Gen. Bill Lockyer, however, laws were broken and criminal charges could be filed as early as this week.

Alex Simpson, an attorney who runs a corporate and securities law blog, said Sonsini apparently failed to foresee the repercussions from the board investigation and the need to devise a damage-control plan.

"He couldn't have made the situation go away, but he could have made it look better," Simpson said.

Others are harsher. Forbes magazine publisher Rich Karlgaard labeled Sonsini "the bad guy in the HP mess." Sonsini should be fired immediately "in the most public way," Karlgaard wrote on his blog.

Sonsini refused to comment, but his spokeswoman said, "For 40 years, Larry has built a reputation as a trusted and principled advisor to companies across the country. His reputation speaks for itself."

One of the issues state and federal investigators are expected to examine at HP involves how Perkins' resignation was publicly disclosed.

When board members quit because of a disagreement about a company's operations, policies or practices, the firm is required to immediately disclose the circumstances. But in announcing Perkins' resignation May 19, HP merely said it was effective immediately. It gave no reason and made no mention of his anger over the probe.

In a subsequent e-mail, Sonsini referred to Perkins' resignation as a personality clash with Dunn.

"Remember," Sonsini wrote Perkins on June 19, "you confirmed that you did not have any issues with HP or the board as a whole."

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