Subprime-related litigation may be all the rage, but the latest securities class action lawsuit harkens back to the era of the prior scandal-driven event. On July 8, 2008, plaintiffs’ attorneys filed an options backdating-related securities class action lawsuit against MRV Communications and certain of its directors and officers.
The lawsuit follows the company’s June 5, 2008 announcement (here) that it has "established a committee of independent directors to review the company’s historical stock option practices." During late 2006 and early 2007, the company had previously conducted "an informal and voluntary review" of its share practices and found no problems. However, in the course of reviewing transactions involving two European subsidiaries, the company identified information suggesting that "the conclusions reached in the earlier review were incorrect," and the company is now undertaking a comprehensive review, not just limited solely to the European subsidiaries.
The company also indicated that financial reports issued during the period 2002 to 2008 may be affected and "the company expects to restate its financial statements for the impacted period." The company indicated that investors should not rely on the company’s financial statements issued during those periods. The company’s share price dropped 24% on the news.
According to the plaintiffs’ counsel’s press release,
during the Class Period, defendants made false and misleading statements concerning the Company’s employee stock option grant practices and financial results. Defendants allegedly caused or allowed MRV to issue statements that failed to disclose or misstated the following: (i) that the Company had problems with its internal controls that prevented it from issuing accurate financial reports and projections; (ii) that because of improperly recorded stock-based compensation expenses the Company’s financial results violated GAAP; and (iii) that the Company’s public disclosures covering a seven-year period presented an inflated view of MRV’s earnings and earnings per share, which would later have to be restated.
Even though the options backdating scandal may now seem like ancient history, new options backdating lawsuits have continued to filter in during 2008. Indeed, the MRV Communications lawsuit is the third new options backdating related securities class action lawsuit to be filed during 2008. (The prior two involved TeleTech Holdings, about which refer here, and Maxim Integrated Products, refer here.)
The one thing that is clear is that we still have a very long way to go before we have seen the end of the options backdating scandal. This may be an important thing to keep in mind when assessing the current subprime and credit crisis mess, which is in my view an infinitely bigger deal than the options backdating scandal. It undoubtedly will be many, many years before we reach the end of the subprime mess.
In any event, I have added the MRV Communications lawsuit to my running tally of options backdating-related securities class action lawsuits, which can be found here. With the addition of the MRV Communications lawsuit, the current tally of options backdating related securities class action lawsuits now stands at 39.
Finally, I have substantial grounds on which to suspect that MRV Communications was also named as nominal defendant in a shareholders’ derivative lawsuit filed in the Los Angeles County Superior Court. I have not yet been able to verify this filing, so I have not yet added MRV Communications to my list of options backdating related derivative lawsuits. I would be grateful if any reader out there who can verify the filing of the MRV Communications options backdating-related derivative complaint would please let me know.
Special thanks to Adam Savett of the Securities Litigation Watch blog (here) for the link to the MRV Communications complaint.
Updated Options Backdating Settlement Analysis: And speaking of the Securities Litigation Watch, Savett has posted on the blog (here) an updated version of his analysis of the value and timing of the options backdating-related class action settlements. The updated analysis accounts for the recent UnitedHealth option backdating class action settlement.
And Finally: Readers interested in the blogosphere’s internal dynamics of will be interested to follow the sequence events that ensued after I added The D&O Diary’s post last night about mid-year FCPA enforcement and litigation activity.
The post was quickly picked up by Dick Cassin’s excellent FCPA Blog (here). The FCPA Blog clearly (and deservedly) enjoys a strong and influential readership, which apparently includes, among others, Dan Slater at the WSJ.com Law Blog, who added his own post (here) referencing back to my item. The Law Blog’s inclusion of a picture of The D&O Diary’s author made this sequence perfect and complete.
This blogging stuff never ceases to amaze me.