News

posted on 23 August 2008 10:36

It always did smell fishy - and now the smell has a price - $8 million. That's what a pair of law firms will get for dropping their own lawsuits against the Brocade option backdaters and letting Brocade take the lead role.

Back in March US law firm Johnson Bottini opened up an action against Brocade's ex-CEO Greg Reyes and HR head Stephanie Jensen and eight others, including Larry Sonsini, the head of Brocade's outside law firm and a Brocade board member, to recover money 'for the benefit of Brocade' that the ten had caused to be lost by Brocade and its investors. Reyes and Jensen were convicted of illegal stock option backdating for Brocade execs, fined and jailed earlier this year.

The Johnson Bottini (JB) argument was that Brocade had lost around $200 million and should be forced to recover that from Reyes, Jensen and the others with the law firm getting paid a contingency fee. Another law form was also involved in the same kind of action, Robbins Umeda & Fink (RUF).

Brocade's Special Litigation Committee bit the bullet and took over the action against ten former board members and executives, with the Sonsini law firm, Wilson Sonsini Goodrich & Rosati, paying $9.5 million to be removed from the legal action. The two law firms, JB and RUF, became co-counsel in this Brocade action.

Now it has emerged that Johnson Bottini and Robbins Umeda & Fink will be paid a certain $8 million plus a part of any recovered monies above $1 million with the two law firms receiving $1 million to $25 million depending upon the recovered amount.

JB and RUF get $4 million up front and $4 million when the case closes plus any recovery fee. Assume a 50:50 split and they each pick up $2 million now and $2 million when the case closes. The original Brocade stock holders in their action get $10,000.

It's possible Brocade expects to get a substantial recovery from the former executives. If Sonsini's $9.5 million get-out-of-jail payment is anything to go by then it looks as if $90.5 million could be a base line with prime mover Reyes having to pay a lot more.

Some might consider the personal enrichment of the lead lawyers at Johnson Bottini and Robbins Umeda & Fink obscene, with them benefitting far more than individual Brocade stock holders.

Back in March we wrote: "An attorney involved in a similar Johnson Bottini move against stock option-backdating directors of Engineered Support Systems Inc. has described their actions as 'disgusting.'" Quite.

^{[More here. Chris Mellor.]}