A former Silicon Valley executive accused of accounting fraud and his lawyers at Keker & Van Nest have won a round in their battle with the Securities and Exchange Commission, landing sanctions against the commission for dragging its heels in discovery.
U.S. Magistrate Judge Nathanael Cousins ordered the SEC to pay $6,942.50 for expenses former Hansen Medical Inc. executive Timothy Murawski incurred in compelling the agency to respond to interrogatories. The SEC refused to share factual information provided by third-party witnesses, arguing that it could not turn over the material without revealing its attorneys' thoughts on the matters. In an order issued Monday, Cousins found that the SEC's objections to Murawski's interrogatories were "not substantially justified" because the court had already overruled similar protests.
"It is clear that the SEC simply wanted a second bite at the apple," Keker partner Elliot Peters wrote in Murawski's motion for discovery sanctions.
Cousins found the expenses requested — about 14 hours of time billed by Keker lawyers at $460 and $525 per hour — to be reasonable.
The discovery tussle stems from the SEC's 2011 suit questioning the accounting practices of executives at Hansen Medical, a Mountain View-based medical equipment company. The agency accused Murawski, the company's former vice president of sales, and Christopher Sells, former vice president of commercial operations, of forging customer signatures to record revenue early, in violation of revenue recognition rules.
Last summer, Murawski sought information from an interview the SEC conducted with a third-party witness concerning the sale of a device to Yale-New Haven Hospital in late 2008, according to the motion. The witness claimed she forged a document at Murawski's request. The court found that details regarding the interview and information from the witness should be provided, rejecting the SEC's claim that notes from the interview qualified as attorney work product.
Murawski brought the agency more discovery requests last October, seeking information regarding interviews with three more third-party witnesses. The agency rebuffed the request, citing the work-product privilege once more. The agency argued in its motion in opposition that sanctions are inappropriate because its oppositions were justified.
"Reasonable minds may differ regarding the work product protection asserted by the commission," the SEC wrote in its opposition to sanctions. "But for that very reason, and others, an award of discovery sanctions is inappropriate."
In Cousins' mind, the question of attorney work product had already been settled. But he parted with the defendant on one point, finding that the SEC had not acted in bad faith.
"If this were a motion arising from a bad faith failure to comply with a court order, a $6,942.50 penalty would not be strong enough medicine," Cousins wrote.