Our favorite moment during Day Two of the JDS Uniphase securities class action trial came when Heller Ehrman partner Michael Shepard used a do-nothing consulting agreement as part of his explanation why his client, former CEO Kevin Kalkhoven, couldn’t be liable for deceiving investors and improperly selling millions worth of stock.
Kalkhoven retired in May 2000, just weeks into the class action period, Shepard said during a well-focused opening statement Wednesday. After that he just worked as a consultant. But Shepard told the jury Kalkhoven didn’t actually do anything as a consultant. He just got paid.
“Is that one of the ways corporate executives make a lot of money? Maybe,” Shepard said. “Is that securities fraud? No.”
Companies pay executives as consultants so they won’t compete at another outfit, Shepard said. And because of this cushy inactivity, Kalkhoven didn’t get any information that the company was going to do badly. So his stock sales in August 2000 are kosher, Shepard said.
Other highlights from Wednesday’s proceedings after the jump.
Morrison & Foerster partner James Bennett, defending the company and former three executives, clearly tried to humanize former CEO Jozef Strauss in the jury’s eyes. Bennett described how Strauss fled Czechoslovakia during the Prague Spring uprising of 1968, when the Soviet Union sent in the tanks.
“His is a real rags-to-riches success story,” Bennett said. Strauss is a scientist who holds six patents, his attorney said. Plaintiffs say Strauss improperly sold $147 million in stock.
Bennett stressed that the reason his clients sold so much stock when they did was because that was the first time they could have sold it: the executives got the stock options in the course of a merger, Bennett said, and because of vesting schedules and blackout periods they couldn’t have unloaded these holdings at any other time.
Plaintiffs allege Kalkhoven and three other executives unloaded because they knew demand in the market was softening. But in his opening statement Shepard said Kalkhoven was merely following advice from financial professionals when the executive retired in May.
Rather than sell on inside information, Shepard said, Kalkhoven held vast swaths of JDS Uniphase stock and investment advisers told him to diversify. At which point Shepard called up a new image on the overhead projector.
It was a picture of a wire basket full of chicken eggs. “You don’t want all your eggs in one basket,” the caption read.
— Dan Levine