|  | | 2008 News and Press Releases | | |
HEADLINE NEWS:
Trials & Errors, As two recent securities lawsuits illustrate, there are no guarantees when you go to court.
Alix Stuart
cfo.com. April 1, 2008
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EXCERPT: When it comes to class-action securities lawsuits, the operative question is usually when, not whether, to settle. Last fall, however, two companies and their executives ignored that dictum and chose a different path: they called their shareholders' bluff and went to trial. One, JDS Uniphase, put former CFO Anthony Muller and other former executives on the stand amid shareholder claims of fraud and insider trading related to the telecom's 2001 loss of $50.6 billion, still one of the largest in history. The second, Apollo Group Inc., had former executives, including CFO Kenda Gonzales, defend their 2003 decision to initially conceal a preliminary — and negative — Department of Education (DoE) report against the private education company. The total at stake for both companies: up to $20 billion in alleged stock losses. Few companies have the fortitude to gamble on a judge and jury. Only 20 federal class-action shareholder lawsuits (including these 2) out of the 2,682 filed since 1995 have gone to trial, according to RiskMetrics Group, and 7 of those settled before the juries could reach their verdicts (see the chart link at the end of this article). The road to the courthouse is starting to look more attractive, however, as the price of settling skyrockets. "The tremendous increase in the dollar value of settlements has greatly altered the economics of securities class cases," says Steven Scholes, a partner with McDermott Will & Emery. The average settlement spiked from $24.6 million in 2004 to $105 million in 2006, according to Cornerstone Research, and many top the $1 billion mark. "You can see how the balance would tip toward going to trial, if you have a good defense," says Scholes. For all those CFOs who sincerely believe they have a good defense against a frivolous shareholder lawsuit, last fall's trials serve as both inspiration and warning. JDS Uniphase walked away from the courthouse exonerated. Apollo Group faces a verdict in the full amount of damages sought, plus the risk of losing its insurance. Why did one company win and the other lose? A look behind the scenes reveals how complex and unpredictable these cases can be. |
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