Nosal Partners Founder Convicted of Stealing Trade Secrets

May 10, 2013 – Executive recruiter David Nosal, 55, founding chairman and CEO of San Francisco-based Nosal Partners LLC, has been convicted of all charges in a six-count indictment by a federal jury that found that Mr. Nosal conspired to gain unauthorized access to the computer system of his former employer, Korn/Ferry International, and to illegally obtaining its trade secrets in 2004 and 2005. Mr. Nosal, who was Korn/Ferry's top biller at the time he departed the firm, was accused of conspiring with former Korn/Ferry colleagues to help him start a rival search business by having them download large numbers of source lists (essentially candidate target lists developed by Korn/Ferry) prior to their own departures from the firm. The guilty verdict followed a two-week jury trial. Mr. Nosal remains defiant. “Interesting journey,” he said. “We are thriving, clients are unwavering, and we picked up a record amount of new business in [the] last two weeks.” David P. Riordan, Mr. Nosal’s lead counsel for the last five years, called the jury verdict “a setback, but I believe a temporary one.” Mr. Riordan said that prior to the jury’s deliberations a trial judge heard a motion to acquit his client on all charges; the judge, according to Mr. Riordan, “expressed skepticism as to the adequacy of the government’s case on each charge.” Prior to trial, Mr. Riordan said that the district court and Ninth Circuit Court of Appeals “threw out nearly three quarters of the charges against David, ruling that the conduct alleged simply did not constitute a crime” under federal law. “We believe that the remaining charges will be dismissed either by the trial judge or on appeal in the Ninth Circuit, which already has rendered a major ruling of national importance in throwing out a number of computer hacking charges against David prior to trial,” he said. But questions remain: Did Korn/Ferry suffer economic damage as a result of Mr. Nosal’s actions? Did Mr. Nosal break a one-year, anti-competition covenant he signed with Korn/Ferry? Mr. Nosal’s future likely hinges on the judge’s decision on this key point. “In many ways this is a landmark case for the executive search industry,” said Scott A. Scanlon, managing director of recruiting industry research firm HSZ Media LLC. “Non-compete agreements and the protection of confidential and proprietary materials are the lifeblood of these firms. You lose that, what’s left?” The sentencing of Mr. Nosal is scheduled for September 4, 2013; the maximum statutory penalties range from five to 10 years’ imprisonment and combined fines of $500,000, plus restitution if appropriate.

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