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Brocade to pursue racketeering claims against former execs - www.mercurynews.com - August 5, 2008

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Brocade to pursue racketeering claims against former execs

RACKETEERING ACCUSATIONS AGAINST EX-CEO, NINE OTHERS

By Scott Duke Harris
Mercury News






 


Brocade Communications Systems, seeking to recoup losses from
the company's stock-option scandal, has decided to pursue racketeering
claims against 10 former executives and directors of the company,
including former Chief Executive Gregory Reyes, now in prison for his
role in the backdating.



However, in court filings released Monday, the company announced it did
not plan to pursue claims against Silicon Valley über-lawyer Larry
Sonsini and his firm, Wilson Sonsini Goodrich & Rosati.



Brocade's special litigation committee emphasized that Sonsini, who had
played controversial dual roles at Brocade as both its corporate
counsel and as a board member, and his firm had maintained that they
had been misled by Reyes.



The filings revealed that another reason was a $9.5 million
"contribution" from Wilson Sonsini to defray legal expenses related to
the scandal.



"These guys did a very thorough investigation and found it would be
inappropriate to pursue a claim against the firm or any one of its
lawyers," said Wilson Sonsini spokeswoman Courtney Dorman.



In its 307-page filing, the litigation committee said it would assert
claims against the defendants under the Racketeer Influenced and
Corrupt Organizations Act, known as RICO, for violations of federal law.



The new Brocade suit also targets Stephanie Jensen, Brocade's former
vice president of human resources, who was also convicted of federal
crimes. It also names five other former



executives and three directors on Brocade's audit committee: Neal Dempsey, Mark Leslie and Seth D. Neiman.


Reyes' attorney Richard Marmaro said it is "sad" that the Brocade
committee "has chosen to denigrate the accomplishments of so many past
and present employees by recklessly suggesting that at the height of
its success, Brocade was used as a racketeering enterprise."



Brocade was among the first companies to come under suspicion for
secretly manipulating stock options to benefit insiders, foreshadowing
a national scandal that raised suspicions at more than 200 firms. The
scandal prompted criminal charges, the ousters of scores of executives
and billions of dollars worth of financial restatements.



In June, Brocade agreed to pay $160 million to resolve securities-fraud
claims by shareholders over stock-option backdating practices. In May
2007, the company dropped Wilson Sonsini as its defense counsel in
related stock-option litigation after a judge noted a potential
conflict of interest.



"Brocade continues to have full confidence in Wilson Sonsini as its
outside counsel and we look forward to continuing that relationship,"
Brocade spokesman John Noh said Monday.


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