Irreverence

posted on 05 August 2008 09:22

Brocade says the ghoulish stock option backdating scandal cost it a merger with Cisco and $830 million in settlements, legal fees and merger benefits. That's a whole mountain of green.

Slightly more than one percent of it has been recouped from the law firm that arguably should have counselled against the backdated options, Wilson Sonsini Goodrich & Rosati.

Let's get this straight: the most prestigious IT law firm in Silicon Valley paid Brocade $9.5 million to release itself from civil claims about the Brocade backdating fiasco when that firm's boss, Larry Sonsini, sat on Brocade's board. That's laundry cost to avoid dirty linen washing in public.

The implication is that Larry Sonsini should have advised against the backdated options being put in place by the now-jailed ex-Brocade CEO Greg Reyes. His firm's willingness to pay nearly ten million buck to make sure the buck stays with Brocade and the Sonsini role never gets tested in court is testimony to this view.

Lawyers, eh! Imagine how exceedingly displeased Brocade's new management, led by Michael Klayko, must be. Zero point eight three billion is a whole heap of green to see disappearing down the drain.

The $830 million is made up from:-

- $160 million to settle a securities class action,
- $7 million to settle SEC charges,
- $7.5 million on Brocade's internal investigations,
- $67 million on Brocade defending Reyes, Jensen and other former executives,
- $30 million on Brocade defending itself,
- $470 million because the CIsco merger went down the drain.

These dirty linen details emerged in court filings on Friday by Brocade's special litigation committee as it instigated legal action against ten former employees and board members to recover some of those greenbacks. Ex-CEO Ryes and former HR head Stephanie Jensen are name plus eight more unfortunates, but not Larry Sonsini and his firm who appear to have played a near ten million dollar 'get-out-of-court' card'.

There are pending derivative suits trying to force Brocade to recover some of the lost cash but Brocade is aiming to get them dismissed and effectively replaced by its own suit. Larry Sonsini and his firm were named in one such suit by law firm Johnson Bottini.

On the surface all was sweetness, light, cream and marshmallow smoothness with Brocade saying it had full confidence in the Sonsini law firm and the firm saying Brocade was an important client. Yeah, right. Up chuck coming alert.

Since the Cisco merger attempt Brocade has bought Foundry Networks. Does that make it more of a potential acquisition target for Cisco? Could a Brocade Cisco merger still be a possibility?

^{[Chris Mellor.]}