Legal News

Is It a Settlement? Wilson Pays Brocade to be Released From Backdating

By Dan Slater

Tucked away in footnote #6 of a court filing connected to the effort by Brocade’s special litigation committee to recover some of the money it’s lost in the backdating scandal is this tidbit: Wilson Sonsini paid Brocade $9.5 million to release itself and its chairman, Larry Sonsini, from possible civil claims filed by a Brocade special litigation committee stemming from the company’s backdating mess. Wilson Sonsini was Brocade’s outside counsel and Larry Sonsini sat on the company’s board when Brocade backdated stock options.

Both Wilson and Larry Sonsini were named in a federal derivative suit filed by San Diego plaintiffs firm Johnson Bottini in April. The special litigation committee has now moved to dismiss the derivative litigation, placing its own lawsuit in its stead. (You gotta love the bizarro world of derivative-suit litigation!) Here’s the report from the Recorder; click here for an earlier post on Wilson’s being named in a suit against Brocade.

In June, Brocade coughed up $160 million to settle a securities-fraud class action. Last August, former Brocade CEO Gregory Reyes was found guilty on criminal charges related to backdating and later sentenced to 21 months in prison. Last 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.

So why would the SLC release the firm and Larry Sonsini? The SLC wrote that it weighed the opinion of a legal ethics expert as well as testimony and documents related to Sonsini and the firm’s roles at Brocade. It also listened to Sonsini and his firm’s “contentions that Brocade employees misled WSGR about stock-option grants” and that the firm had negotiated a good settlement with the SEC and helped avoid DOJ action against Brocade. The committee also considered the firm’s longstanding relationship with Brocade and the firm’s “willingness” to help the company resolve any “outstanding questions” about the backdating.

A Wilson Sonsini spokeswoman refused to characterize the payment as a settlement but conceded that it came as part of the “SLC’s process.” She said: “Brocade continues to be an important, longstanding client, and we’re glad that this is resolved.”

Brocade spokesman John Noh said Brocade “continues to have full confidence in Wilson Sonsini Goodrich & Rosati as its outside counsel, and we look forward to continuing that relationship.”

Full post as published by Law Blog - WSJ.com on August 05, 2008 (boomark / email).