NPR Settles Brocade Securities Litigation for $160 million
June 2, 2008
An NPR team lead by partners Brad Beckworth and Jeff Angelovich, and associates Susan Whatley and Brad Seidel, has reached a $160 million settlement on behalf of the class and its client, the Arkansas Public Employees Retirement System (APERS), in the Brocade Securities Litigation, a securities fraud class action regarding the backdating of stock options. This settlement is the largest to date in an options backdating class action. It is also believed to be one of the largest settlements in a securities fraud case in terms of the ratio of settlement amount to actual investor damages.
This case is styled Brocade Securities Litigation, Consolidated Case No. 3:05-CV-02042-CRB, and is filed in the U.S. District Court for the Northern District of California, San Francisco Division. The settlement is subject to final approval by the court, and formal notice of the settlement will be issued at a later date.
For updates and documents related to the settlement notice and process, please go to: www.brocadeclasssettlement.com.
The case was filed in May 2005 against Brocade Communications Systems, Inc., a technology firm based in San Jose, California, and several of the company’s officers and directors. The settlement follows three years of hard-fought litigation in federal court in San Francisco.
“This is an outstanding recovery,” said Gail Stone, executive director of APERS, the lead plaintiff. “A recent study showed that most securities fraud class actions settle for less than 10 percent of investor losses. Our $160 million settlement is the largest backdating settlement to date but, more importantly, it is close to a 100 percent recovery of the class’s total damages.” Sue Weber, controller for the Erie County (PA) Employees Retirement System, the co-class representative, added: “We are thrilled with the result that has been achieved.”†
“Recovering such a large percentage of actual damages is unheard of, but after we won summary judgment on liability, the only other option for the defendants was to face a trial,” said Brad Beckworth, counsel for the class and a partner with Nix, Patterson & Roach. “This settlement shows just how important it is to have thoughtful and determined institutional investors, like APERS, fighting to maximize recoveries in securities fraud cases.”
The Brocade Securities Litigation was one of the first securities fraud cases involving allegations of stock option backdating and was the subject of a Pulitzer Prize-winning article in The Wall Street Journal. APERS alleged that former Brocade CEO Greg Reyes, former CFO Antonio Canova, and several former directors, including prominent Silicon Valley attorney Larry Sonsini, committed securities fraud when the company failed to disclose millions of stock options with improperly altered grant dates. As the case progressed, APERS won summary judgment on the issue of liability against Brocade and Mr. Reyes, unprecedented in securities fraud class actions.
While APERS and Nix, Patterson & Roach were conducting discovery and preparing for trial, Brocade attempted to settle a parallel derivative case against several third parties. Although APERS was not a party in that litigation, it joined together with the Puerto Rico Government Employees Retirement System to object to the settlement, claiming it was the result of improper collusion among Brocade, Mr. Sonsini, and the company’s outside law firm, Wilson Sonsini Goodrich & Rosati, PC. As a result of this objection, the parties withdrew the derivative settlement and Brocade was forced to appoint a special litigation committee and hire independent counsel.
Brocade has settled a civil case with the U.S. Securities and Exchange Commission (SEC) for $7 million, and the SEC still has cases pending against Messrs. Reyes and Canova, as well as Stephanie Jensen, the company’s former vice president of human resources. In 2007, Mr. Reyes and Ms. Jensen were convicted on multiple counts in separate criminal trials and sentenced to time in prison.