Brocade Pays $160 Million to Settle Options-Backdating Suit

[WSJ_law_blog]

This just in: Brocade Communications has agreed to pay $160 million to plaintiffs to settle a federal securities class-action lawsuit related to stock-options backdating. Here’s the story, from the WSJ’s Mark Maremont and John Hechinger, as well as Brocade’s link press release.

The case was filed in May 2005 in the U.S. District Court for the Northern District of California. Under terms of the preliminary settlement, Brocade will pay $160 million to the plaintiff class in exchange for dismissal of all claims. The settlement requires approval of the federal district court.

Of the dozens of companies that got wrapped up in the stock-options backdating scandal, Brocade was among the hardest hit. Last August, former Brocade Chief Executive Gregory Reyes (pictured) was found guilty on criminal charges related to backdating. He was accused of defrauding shareholders between 2000 and 2004 by routinely altering the grant dates of stock options awarded to recruit and retain employees and of falsifying documents to cover up the scheme. In January, he was sentenced to 21 months in prison. In December, a jury convicted former Brocade human-resources director Stephanie Jensen on other charges related to backdating. In March, she was sentenced to four months in prison.

In the civil class-action lawsuit, Brocade last month suffered a setback when a federal judge in San Francisco ruled that the company was financially liable for Reyes’s conduct, following an earlier summary judgment ruling that Mr. Reyes himself was at fault in the civil matter.

After that, said Brad Beckworth, the lead plaintiffs’ attorney in the case at Nix, Patterson & Roach, “the only issue we were going to have to try was how much money Brocade was going to have to pay. The company knew it was time to resolve this case.”

Few of the roughly 30 class-action suits involving backdating have been settled. In October, Hewlett-Packard agreed to a $117.5 million settlement of a class-action suit tied to allegations of stock-options backdating at software maker Mercury Interactive Corp., which was acquired by H-P.

Most of the shareholder lawsuits over backdating have been so-called derivative suits, in which shareholders sue third parties on behalf of a company. The bulk of these have yielded relatively small sums.

Photo: AP