According to Legato's SEC Form 10-Q filing for the quarterly period ended June 30, 2003, in April 2002, the company settled class action and derivative lawsuits in United States District Court for the Northern District of California and in San Mateo County Superior Court, respectively. The settlements in the federal and state litigation called for Legato to pay a total of $87.7 million, which included attorneys’ fees, in May 2002.

The Complaint charges that Legato and certain of its officers and directors, violated the federal securities laws. The Complaint alleges that during the Class Period defendants made materially false and misleading statements regarding, among other things, the financial condition of Legato. The Complaint alleges that in order to inflate the price of Legato's stock, defendants caused the Company to falsely report its financial results for the third quarter of 1999 by improperly recognizing revenue. On January 20, 2000 defendants, revealed that the Company's earnings would fall short of meeting expected earnings for the fourth quarter of 1999 and that it was restating its third quarter results. The complaint also alleges that during the Class Period, while in possession of material undisclosed information defendants sold millions of dollars worth of Legato stock. After defendants' disclosure the price of Legato stock plummeted 63% to $29 per share in after hours trading. During the Class Period defendants made no corrective statements.