Legal Pad

Brocade Cases to End With Arbitrary Whimper

The last bit of the Brocade backdating mess is gong to be settled in arbitration.

Dewey & LeBeouf’s Ralph Ferrara has been pursuing ex-Brocade execs — with mixed results — to pay back the company for money lost during the huge backdating scandal at the company. Although half of the ten execs got themselves dismissed from Ferrara and Brocade’s derivative suit, there were still five others, including prison-bound former CEO Greg Reyes, remaining in the case. Former CFO Antonio Canova and another exec settled out of the case for a few hundred grand. Now, Reyes and two former Brocade directors, Seth Neiman and Neal Dempsey have agreed (.pdf) to be judged by a three-arbitrator panel.

What do you think? Is it better for Brocade or the execs? Certainly, Reyes didn’t fare too well before a jury last time around.

— Zusha Elinson

Ex-Rambus GC Rambles About Self-Googling, Bum Raps

Former Rambus GC John Danforth is fighting the perception that he left Rambus a few years back because of litigation setbacks and backdating at the company.

Danforth wrote a long post on a Rambus investor message board decrying the evils of Google search, which he writes turn up negative articles about himself. On the backdating front, Danforth points out that the company’s special litigation committee cleared him of any wrongdoing, a fact Cal Law mentioned in an article in 2007. He also pointed out that some bad results in litigation back then have since been overturned, like the ruling from a Virginia judge finding that Rambus shredded documents in anticipation of litigation. (That whole issue is now back in the news in a different case).

More, more and more, after the jump.

An In-House Lawyer's Wild Backdating Ride

A plea deal released today by federal prosecutors in LA shows how in-house lawyer Richard Hirst’s California dreams got squashed. He’s not the guy who pleaded guilty; rather, he comes off in the documents as the unwitting instrument in a corporate coverup at KB Home. And while he’ll likely escape jail, Hirst’s role is very far removed from what he probably had in mind when the out-of-town attorney hit Wilshire Boulevard to ride the housing bubble.

In 2004, Hirst left his GC slot at Burger King to become KB Home’s top lawyer. The stock option backdating scandal broke in spring 2006, though, and two KB Home executives — CEO Bruce Karatz and HR chief Gary Ray — got scared: they knew the company had been misdating options since the 1990s. So they came up with a plan: they’d lie to Hirst, who was conducting an internal investigation, and lead the company to file a false SEC document that told the world, essentially, nothing to see here.

"And we would've gotten away with it, too, if not for those kids from Irell & Manella, and that darn dog" ... after the jump.

Brocade Suit Takes Hit; Did Sonsini Settle too Soon?

Everyone was a little stunned by the way Dewey & LeBeouf’s Ralph Ferrara tried to sue the pants off of Brocade execs and directors earlier this year. Representing Brocade, Ferrara sued 10 former top brass, including pokey-bound CEO Greg Reyes, to recover the millions the company lost in the backdating scandal.

Now it’s Ferrara’s turn to be a little stunned. In an order (.pdf ) filed late Friday afternoon, Judge Charles Breyer dismissed all claims against four of those execs, former CFO Mike Byrd, director Mark Leslie, founder Paul Bonderson, and Jack Cuthbert. Breyer also dismissed a number of claims against other defendants like Reyes and former HR Chief Stephanie Jensen.

Ferrara, a well-known East Coast securities defense lawyer, advised the Brocade special litigation committee earlier this year as it deliberated whether to take up claims made in derivative suits filed by plaintiff lawyers Frank Bottini and Marc Umeda. Brocade chose to take up the claims and Ferrara took control of the derivative suit, exacting an $9.5 million settlement from Larry Sonsini and Wilson Sonsini, who’d both been named.

Legal Pad wonders how Larry Sonsini and his firm are feeling now. Might they also have won a motion to dismiss and saved $9.5 million?

— Zusha Elinson

S.F. SEC Files Final Backdating Case

Thankfully for everyone weary of the backdating scandal, the SEC’s San Francisco office filed its last backdating case today.

It’s against Robert Verheecke, the CFO at tiny Blue Coat Systems, which took a $50 million charge because of backdated stock options. Verheecke, who was represented by Katten Muchin’s Bruce Vanyo, agreed to settle charges by paying $185,000 in fines, disgorgement and prejudgment interest.

Blue Coat GC Cameron Laughlin was demoted at the time of the company’s internal investigation. The audit committee said she knew about the backdating, but blamed it on her “limited public company securities and corporate governance experience.” Laughlin wasn’t a government target and is still at the company.

The reason we know it’s the last backdating case here is because S.F. SEC chief Marc Fagel told us so himself.

WilmerHale builds its 'ex-SEC lawyers' practice

The SEC lawyer behind the Brocade backdating case has resurfaced months after leaving the SEC.

Patrick Murphy, a branch chief in the SEC’s San Francisco office until this past summer, joined WilmerHale in Palo Alto as counsel last week.

See who else WilmerHale's recruited from the SEC, after the jump.

Justice Dept. Says It's Done With Roberts Case

The Justice Department’s case against Kent Roberts is officially closed.

A government motion went up this afternoon to dismiss the counts on which the jury deadlocked against the former McAfee GC. Assuming Judge Marilyn Hall Patel signs it (and given her commentary on Friday, she most assuredly will), Roberts will not have to worry about retrial on a “false books and records” charge, or an alternate honest services theory of mail fraud. The jury acquitted Roberts on another fraud theory.

U.S. Attorney Joseph Russoniello was recused from the prosecution, by virtue of his past association with Cooley Godward Kronish (which defended Roberts). So it fell to first assistant Dave Anderson to hammer the final nail.

"We tried the case as effectively as we could, and could not convince this jury that we had proved it beyond a reasonable doubt,” Anderson said in a prepared statement. “Respecting the jury's views, we have decided not to pursue this case further."   

Cooley partner Stephen Neal declined to comment Monday afternoon, because Patel had not yet signed the order.

—  Dan Levine

J.D. Juror Explains Roberts Backdating Verdict

A jury dramatically shaved the government’s stock option batting average today after it acquitted former McAfee general counsel Kent Roberts of mail fraud charges. Our story on Cal Law was heavily informed by an interview with juror William West, a retired contract manager from Oakland. West, smoking cigarettes outside the federal building, was kind enough to donate another solid hour of his time (this, mind you, after a three-week trial) so that we— and you! — could peer into the jury room.

West holds a J.D., it’s worth noting. Negotiating contracts for the Port of Oakland, he didn’t like not knowing the law when he faced lawyers across the table. So he attended Golden Gate University School of Law (’81), got his degree, but never went into practice.

A few points that didn’t make it into our other story: One defense point that resonated with the jury concerned Terry Davis, McAfee’s former controller who allegedly possessed the authority to change the date on Roberts’ grant. Cooley partner Stephen Neal had argued that Roberts would not have turned Davis in to the SEC in a subsequent internal investigation had they been in cahoots on the 2000 option grant. West agreed, calling it a “common sense” conclusion.

“If there had been a conspiracy at the beginning between the two to change options, once Davis realized two years later he was going down, he would have taken Roberts down with him,” West said.

Coughlin Firm to Get Nearly $14M from McAfee

The wages of sin are death. Lousy pay, if you ask us. But the wages of backdating lawsuits are nothing to sneer at. The proposed settlement (.pdf) in McAfee’s derivative litigation over backdating would give lawyers at Coughlin Stoia and other plaintiff firms $13.75 million for their work.

The settlement also gives McAfee $30 million by freezing and canceling about 2 million stock options.

The settlement must be approved and there are three key people who aren’t too pleased with the deal: former CEO George Samenuk, former GC Kent Roberts (who’s fate is currently in the hands of a federal jury), and former president Kevin Weiss aren’t getting a release. The plaintiffs are proposing to preserve claims against the triumvirate for the company to pursue.

—  Zusha Elinson

Backdating Expires: Maxim Suit to Settle

Thankfully, the long drawn-out backdating festival is slowly coming to an end.

Yesterday, Maxim Integrated Products told a San Jose federal court that it had agreed to settle (.pdf) several derivative lawsuits against its former top brass.

The company’s directors and officers insurers will pay the company $21 million. Former CEO John Gifford, who settled with the SEC, will cough up $6 million on his own and cancel his stock options. Former directors are also kicking in some money and canceling options. All in all the settlement comes to about $28 million, double what Apple recently settled its backdating derivative cases. Plaintiffs lawyers, of which there are many, will be getting $15 million.

—  Zusha Elinson