A Profession Under a Cloud

By James V. Grimaldi
Washington Post Staff

THE corporate crime wave that unfolded in 2002 damaged the reputation of the legal profession, weakened the public's faith in lawyers and drew intense scrutiny from investigators who want to know why so many of America's counselors-at-law turned a blind eye to lawbreaking.

Perhaps no one lawyer sums up how far attorneys have fallen in the past year than former Tyco International Ltd. chief general counsel Mark Belnick, a lawyer previously lauded for his adherence to ethical principles but who became embroiled in the scandal enveloping Tyco. A lead investigator 15 years ago during Iran-contra, Belnick now faces charges of falsifying business records regarding $14 million in undisclosed, interest-free loans to himself.

In many ways, the Belnick story is a super-sized version of what so many other lawyers faced in the past year, with attorneys being sued, investigated and charged in the fallout of one bankruptcy or scandal after another. Because of how his fall from grace reflects the ethical deflation of the legal industry, Hearsay names Belnick its Lawyer of the Year.

From Enron Corp. to WorldCom Inc., from Harvey L. Pitt to William H. Webster, from Salomon Smith Barney Holdings Inc. to Sarbanes-Oxley, 2002 was a year in which corporate scandal touched lawyers, from white-collar defenders (everyone wants them) to prosecutors (their caseloads are ballooning) to corporate counsel (they're being sued and indicted).

Enron spawned scrutiny of Vinson & Elkins, which has been dragged into the muddy post-bankruptcy investigations of the energy giant. Enron also led to the indictment and fall of Arthur Andersen LLP; Andersen corporate attorney Nancy Temple's explanations to a congressional committee about why she fired off an e-mail that prompted Andersen employees in Houston to shred Enron-related documents are now being investigated.

Pitt, the former Wall Street lawyer-turned- Securities and Exchange Commission chairman, lost his government job over his mishandling of the wave of scandals and his appointment of Webster, whose role on the audit committee of another firm embroiled in a corruption probe made service on an accounting-review committee seem, well, unseemly.

Such turmoil in the legal world was par for the course. Attorneys who rode the boom times with America's top companies now face questions about how they permitted crimes to go unreported. Rampant boardroom corruption has forced dramatic changes in laws, which in turn boosted business for firms to help interpret those laws. The SEC is in the process of rewriting rules on when attorneys have to turn in their lawbreaking clients.

But the Belnick story is one that still leaves many of his colleagues shaking their heads.

"It is just sad," said Howrey Simon Arnold & White LLP's John W. Nields Jr., who worked with Belnick investigating Iran-contra.

Belnick was indicted in September at the same time as Tyco chief executive L. Dennis Kozlowski and Chief Financial Officer Mark H. Swartz. Kozlowski and Swartz were accused of using $170 million in company money to hold extravagant parties and buy expensive homes, jewelry and art for themselves.

The SEC, which filed a civil fraud suit, called the matter "a looting case. It involves egregious, self-serving and clandestine misconduct by the three most senior executives at Tyco International Ltd." The SEC accused Belnick of defrauding "Tyco shareholders of millions of dollars through egregious self-dealing transactions" in violation of anti-fraud securities laws.

In June, after Tyco retained David Boies of Boies, Schiller and Flexner to conduct an international investigation, the company fired Belnick.

Belnick has mounted a vigorous defense, hiring one of Washington's top white-collar defense attorneys, Reid H. Weingarten of Steptoe & Johnson LLP. (Weingarten represents another accused ex-general counsel, Franklin Brown of Rite Aid Corp.)

Belnick contends that he broke no laws, disclosed what was required, kept the Tyco officials in the loop, told auditors from PricewaterhouseCoopers and sought prior approval for the loans.

The odyssey from respected Iran-contra lawyer to indicted former general counsel is a tale so strange that many who know him still don't know what to make of it.

In 1987, Belnick became a familiar face alongside his mentor, Arthur L. Liman of Paul, Weiss, Rifkind, Wharton & Garrison, who brought him along as chief deputy on the Senate select committee investigating the illegal sale of arms to Iran and diversion of proceeds to Nicaraguan contras.

From a Senate dais, Belnick calmly quizzed Lt. Col. Oliver North, extracted document-shredding details from his secretary, Fawn Hall, questioned Secretary of State George Shultz, and pried damning admissions from Assistant Secretary of State Elliott Abrams, who was later convicted of two counts of lying to Congress.

Belnick's biggest headline-grabbing coup was locating $10 million from the Sultan of Brunei that had been intended for the contras. Belnick found it in a Swiss bank account. It got there by mistake when North gave Abrams the wrong Credit Suisse account number for the contras.

After Iran-contra, he returned to Paul, Weiss, handling high-profile cases until 1998, when Kozlowski tapped him for the general counsel job.

According to the SEC lawsuit, Belnick twice misused an employee-relocation plan meant for workers who had moved to New York City from New Hampshire. At the time, Belnick was living in a New York suburb.

"When Belnick joined Tyco, he demanded and received a loan of approximately $4 million to 'relocate' to New York City -- even though he was ineligible for the [company relocation] plan because he had not previously worked for Tyco," the suit alleges.

In 2001, Belnick got another $10 million loan to buy and renovate a Park City, Utah, ski chalet. "Scheming with Kozlowski, the loan was ostensibly granted under Tyco's loan relocation program," the suit alleges. Tyco has no office in Utah.

The document fraud allegedly occurred when Belnick failed to disclose the loans in SEC filings, which were prepared from director and officer questionnaires given to senior executives.

In a motion to dismiss the fraud charges brought by the Manhattan district attorney, Belnick argued that Swartz, who was CFO at the time, assured him that Marian Tse, at Boston-based Goodwin Procter LLP, had advised that Belnick's loan did not have to be disclosed on SEC filings. Also, he cites consultation on the matter with Washington's Wilmer, Cutler and Pickering.

To convict Belnick, a jury must find that he intended to defraud the public by deliberately failing to disclose the loan.. Prosecutors might be attempting to build a case that Belnick got the loans as a payoff to look the other way from alleged wrongdoing by Kozlowski and Swartz.

Proving such intent to break the law is a tough standard. In the end, it might be as difficult as it was to make charges stick to Iran-contra figures.

After all, following Abrams's conviction, President George H.W. Bush pardoned him on Christmas Eve, 1992.

Now, Abrams is working for the current President Bush on the National Security Council -- as an ignominious cloud of indictment hovers over Belnick.

Oh, how the tables turn in the legal world.