Read The Recorder‘s roundup of the stock-option backdating scandal. There won’t be a test later … but there might be a subpoena.
Salzmann said the fact that “outside counsel had specifically advised that they were not supposed to backdate” also bolstered the case, although that advice came after most of the alleged backdating had taken place.
After the alleged whitewash, Embarcadero’s audit committee persisted and hired O’Melveny & Myers in late 2006 to do another investigation. CEO Wong resigned in January 2007 and CFO Sabhlok had his essential duties stripped from him. Sabhlok refused to be interviewed by the O’Melveny lawyers. He and controller Pattison also refused to talk to the SEC, exercising their Fifth Amendment rights.
Private equity firm Thoma Cressey bought Embarcadero in 2007 for $200 million, taking the company private. The deal was delayed while Embarcadero finished its internal investigation.
Richard Marmaro, the Skadden, Arps, Slate, Meagher & Flom lawyer representing Sabhlok, said in a prepared statement that the SEC’s “selective focus” on Embarcadero “raises serious legal questions.”
“Embarcadero is no longer public, its stock was thinly traded when it was public, the company had few non-employee shareholders, and its restatement amount was by far one of the smallest and totaled less than $15 million,” Marmaro said. He noted that Sabhlok did not profit from any of the grants at issue.
Patrick Richard, a Nossaman partner representing Pattison, did not return calls seeking comment.
Latham & Watkins partner David Schindler, who represents Wong, said he’s pleased the issue is behind his client.
“It’s important to note that Stephen was the driving force behind Embarcadero and also that none of the options at issue here were issued to Stephen,” Schindler said.
Kirkland & Ellis’ Mark Holscher, who represented the company, was out of the country and couldn’t be reached for comment.
SEC lawyers and a U.S. attorney’s office spokesman wouldn’t say whether the Department of Justice is looking at the Embarcadero case, but Marmaro said he didn’t “believe DOJ is involved” and Latham’s Schindler agreed.
San Francisco SEC chief Marc Fagel said the Embarcadero case is the last backdating case that the office will bring before the close of the agency’s fiscal year on Sept. 30.
Fagel did say that the office “may have an additional” backdating case in the new fiscal year, though all of the investigations have been wrapped up.
