Brocade Pays Record $160M to Settle Lawsuit

Brocade pays up to put a lid on its recent accounting scandals

June 3, 2008

2 Min Read
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Brocade has coughed up $160 million to settle a class-action lawsuit related to the companys options backdating scandal, in a clear attempt to finally draw a line under the Greg Reyes era.

Earlier this year, ex-Brocade CEO Reyes was sentenced to 21 months in jail and a $15 million fine after being found guilty of securities fraud, and the shock-waves from the vendor’s 2005 restatement of financial results have continued to reverberate.

In a statement released last night, Brocade confirmed that it had “reached an agreement in principle” with lead plaintiffs in the class-action suit, which was filed against the company and “certain former directors and officers“ in May 2005.

“Brocade believes that this settlement is in the best interest of its shareholders and the Company, as it significantly reduces the uncertainty associated with this ongoing litigation,” the firm's statement read. “This resolution enables the company to put the class action behind it.”

The deal follows a federal court ruling earlier this year that Brocade was financially liable for Reyes’s actions, resulting in what is now being described as the largest-ever backdating settlement.In a separate statement last night, law firm Nix, Patterson & Roach, counsel for the class action, said that the settlement followed three years of “hard-fought” legal battles.

”After we won summary judgment on liability, the only other option for the defendants was to face a trial,” said Brad Beckworth, a partner with Nix, Patterson & Roach. “Recovering such a large percentage of actual damages is unheard of.”

The settlement, which is still subject to approval by federal district court, was hailed as a triumph by the lead plaintiff in the case.

“This is an outstanding recovery,” said Gail Stone, executive director for the Arkansas Public Employees Retirement System (APERS), in a statement last night. “Our $160 million settlement is the largest backdating settlement to date, but, more importantly, it is close to a 100 percent recovery of the class’s total damages.”

Based on Brocade’s preliminary settlement, the vendor will record an estimated expense of $160 million on a pre-tax basis. This expense has been included in Brocade’s results for the quarter and six months ended April 26, 2008, according to the vendor.Brocade, which comfortably beat analysts’ estimates in its recent second-quarter results, downplayed the settlement’s longer-term financial impact in its statement last night.

“This expense is not expected to impact the Company’s non-GAAP results of operations,” it said.

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  • Brocade Communications Systems Inc. (Nasdaq: BRCD)

  • Securities and Exchange Commission (SEC)

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