Backdating suit settled

Perhaps one of these days the folks at Vitesse Semiconductor will be able to focus their attention on making telecom chips, not paying legal bills. The company announced that it will pay $8.75 million to settle shareholder suits over the backdating of employee stock options. It sounds like Vitesse is coming off relatively well - the company says that its insurers will cover the amount. The settlement, subject to court approval, also releases them from agreements to pay legal fees for three senior executives, including CEO Louis Tomasetta, who were fired in May 2006 during an internal probe. Former managers of the Camarillo backdated stock option grants and altered documents to cover it up. Here's the Bloomberg story.

It's a nightmare, all right, but at least it's not as bad as what's going on at Brocade Communications, where former CEO Greg Reyes was convicted by a federal jury of stock options backdating-related fraud. Turns out the company is picking up his legal bills, which are now up to $38.4 million (net income in its most recently ended quarter was $10.7 million.) The total legal bill could top $100 million; attorneys for Reyes are working on an appeal. "It’s sickening to see a company spend tens of millions defending people who hurt shareholders," Brad Beckworth, a lawyer for the Arkansas Public Employees Retirement System, a big Brocade institutional shareholder, told Bloomberg. The American Lawyer's Susan Beck writes that "companies have spent untold millions on legal fees for independent investigations, government negotiations, and shareholder and derivative suits. And even if the companies clean house, the disgraced executives can and do insist that their former employers keep paying their high-priced lawyers, thanks to indemnification contracts that are a standard perk in executive suites."

"In most stock option cases, insurance companies are not reimbursing [legal expenses] in the ordinary course," says a lawyer whose firm represents a backdating defendant. Insurers are citing policy exclusions, such as when individuals engage in bad acts for personal profit. Some of these coverage disputes are in mediation or arbitration, this lawyer says.

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Mark Lacter
Mark Lacter created the LA Biz Observed blog in 2006. He posted until the day before his death on Nov. 13, 2013.
 
Mark Lacter, business writer and editor was 59
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