Wanted: CEO-Location Technology 

The saga of East Bay firm US Wireless raises questions about the role of corporate boards and auditing firms in policing the behavior of executives.

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Klarman, on the other hand, was a rough-edged, street-savvy New Yorker who made few friends and alienated many in the company, the two former board members say. He was protected by his buddy Hilsenrath, Gross recalls. "If I called him a sleazebag, it would be a compliment," the former board member says angrily. "He's not a likable guy." The former general counsel was recently arrested at his home in New York's tony Hamptons. His attorney did not return phone calls.

Hilsenrath is not in custody. He's back home in Israel, although his attorney vows that his client plans to return to face the charges. "We're arranging for him to return voluntarily," says Mike Shepard, a San Francisco attorney. "He denies the charges, and to show he means it, he's returning voluntarily to defend the charges."

Gross, however, puts the likelihood of Hilsenrath returning to defend himself at less than zero. "He's hiding in Israel and he's not going anywhere unless they drag him back," says Gross. "He left in the middle of the night with his family and sold his house."

Matt Jacobs, a spokesman for the US Attorney's Office in San Francisco, says no extradition papers have been filed yet, but the office intends to ensure Hilsenrath shows up in federal court for trial. But in the past, American officials have not been very successful extraditing Israeli citizens to face criminal charges.

Hilsenrath and Klarman were indicted on three counts each of securities fraud, which carries a maximum ten-year sentence for each charge. Hilsenrath also faces 33 counts of wire fraud and Klarman another sixteen charges. A conviction on one count of wire fraud carries a maximum five-year penalty plus a $250,000 fine.


Members of Congress believe that accounting and fraud scandals of this type are less likely to occur in the future due to 2002 federal legislation known as the Sarbanes-Oxley Act. Passed in response to the rash of high-profile corporate fiascos at Enron, Global Crossing, WorldCom, and elsewhere, the act mandates widespread corporate changes for publicly traded companies in an attempt to ensure more accountability. Under the act's provisions, members of the boards of publicly traded companies are now personally financially responsible for corporate malfeasance that occurs on their watch. The legislation also requires more stringent auditing documentation and controls. Additionally, the law creates a new set of requirements for attorneys who represent public companies before the SEC.

"You're never going to get rid of human greed or ego, so we have to create systems to keep it in check, and that's why we have Sarbanes-Oxley," says UC Berkeley's McElhaney. "We have to recognize that greed and ego and punish it. In the past, it's been recognized but not punished."

But Latham of the Corporate Monitoring Project Team isn't so optimistic about the legislation's likely impact. "Sarbanes-Oxley is going to enforce 2 percent of the cases instead of 1 percent," he warns. He says much corporate malfeasance is hard to catch because the SEC doesn't have adequate resources to police the five thousand publicly traded companies for which it is responsible, and most wrongdoing isn't as blatant as what occurred at US Wireless.

To truly reform the system, Latham would like to see company auditors picked by shareholders , rather than by board members who may have a stake in hiding problems. He also proposes letting shareholders use company funds to pay for independent voting advice. Currently, he says, board members have a monopoly on voting recommendations. "We should be giving more power to the shareowners," he says. "And shareowners should be stepping up and exerting more power." Until that happens, he warns, "we can expect a show of fixing the problems without really fixing the problems."

In any case, the new federal regulations came too late for the investors and employees of US Wireless. "This case highlights the ongoing risks for public investors," says San Francisco attorney Joe Tabacco, who represented two former investors in a case against the company. "My former clients lost their entire investment of tens of thousands of dollars."

Former US Wireless shareholders have filed numerous lawsuits against the bankrupt firm that are likely to be bundled into one large class-action suit. Given that the company's assets have all been sold off, it is unclear if they will be able to collect anything.

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