The settlement is the largest to date in an options backdating class action. Gail Stone, executive director of APERS, the lead plaintiff in the class action said the settlement “is close to a 100% recovery of the class’s total damages.”
In its suit, APERS alleged that former Brocade CEO Gregory Reyes, former CFO Antonio Canova, and several former directors committed securities fraud when the company failed to disclose millions of stock options with improperly altered grant dates. The granting of summary judgment to APERS on the issue of liability against Brocade and Reyes was unprecedented in securities fraud class actions, according to the announcement.
Brocade settled a civil case with the U.S. Securities and Exchange Commission (SEC) for $7 million. Reyes and Stephanie Jensen, the company’s former vice president of human resources, were convicted on multiple counts in separate criminal trials and sentenced to time in prison (See Ex-Brocade CEO Gets Fine, Jail Termand Ex-Brocade Exec Slapped with Jail Time for Backdating Charges ).
In October 2006, software firm Mercury Interactive Corp. proposed a $35 million civil penalty to settle the Securities and Exchange Commission (SEC) investigation into irregular stock option accounting practices (See Mercury Makes $35M Settlement Offer for Options Backdating Fraud ). The settlement was thought to set a precedent for the 80+ other companies entangled in the SEC’s probe.
Since then, American Tower Corporation settled with Steamship Trade Association-International Longshoreman’s Association Pension Fund (STA-ILA) and other plaintiffs for $14 million over charges relating to stock options backdating (See American Tower Settles with Pension Fund over Options Backdating ).
A news report from The Recorder said the proposed settlement releases former Brocade director and outside counsel Larry Sonsini from liability in the class action, but he still is not in the clear. A derivative suit is still open.
The derivative case had been close to a settlement last year that would have released Sonsini's firm from any claims asserted by Brocade, court filings said, according to The Recorder. However, a group of plaintiffs lawyers objected.
By 2008, the proposed derivative settlement had stalled, and Brocade's board formed a special litigation committee made up of two members who had not been at the company when the backdating occurred. The committee could recommend claims against the company's former executives and its professional advisers.