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Ex-GC Sues Atmel for Defamation
The Recorder
August 14, 2009
Michael Ross was fired and blamed for two corporate scandals at Atmel Corp. -- but now the former general counsel is fighting back.
Ross has filed a lawsuit, claiming the San Jose, Calif., semiconductor company ruined his reputation when it pointed the finger at him and others for the company's stock option backdating problems, which led to a $125 million financial restatement. Having been fired along with other Atmel executives in 2006 after an investigation into the misuse of travel funds, Ross became an easy scapegoat when the company faced a mounting backdating mess a year later, his lawyers say.
Many lawyers in Ross' position bore the brunt of the blame for the backdating scandal that swept Silicon Valley's tech companies. They were fired; they were pursued by the government for overseeing the illegal practice of fudging dates to grant stock options at low prices and not properly accounting for it. But few have fought back with lawsuits like this.
Then again, the case of Ross and Atmel is like no other.
The backdrop for the dispute was a nasty corporate struggle to control Atmel. Company founders George and Gust Perlegos were ousted along with Ross after an internal investigation found that all had been taking personal trips on the company's dime without paying their share. Then came a grueling, public proxy battle for control of the company between CEO George Perlegos and the new management.
Ross, who had worked for Atmel since 1989, was the company's first general counsel. He was close with the Perlegos brothers, who built the company from scratch into a more than $2 billion company by 2000. His lawyers say he was unfairly blamed for backdating because of it.
"We definitely feel that Mike Ross, as a former employee, was a convenient scapegoat and was unfairly singled out, mainly because of his long-standing relationship with [George] Perlegos, who was in a proxy fight at the time," said Kenneth Herzinger, an Orrick, Herrington & Sutcliffe partner representing Ross in a related derivative lawsuit against Atmel execs.
(Ross is represented by Scott Lawson of Quinn Emanuel Urquhart Oliver & Hedges in the employment suit; Lawson was traveling on Thursday and could not be reached for comment.)
Herzinger went on to criticize the findings of the internal investigation into backdating at Atmel, which was handled by Bergeson, a small but well-known Silicon Valley firm that also handled the travel funds investigation.
"We don't think the findings and conclusions are accurate," Herzinger said. "We don't think they were fair, and based on the evidence we've seen, he was singled out and treated differently than other similarly situated individuals at the company."
Herzinger added that the SEC closed its investigation into Atmel's options problems without suing Ross.
Aside from defamation, Ross' suit claims that the company didn't pay him everything he was owed at the time he was fired. His suit, filed July 15, was disclosed in Atmel's quarterly report, filed with the SEC this week.
Atmel didn't return requests seeking comment, and lawyers at Bergeson declined to comment. Kenneth Kuwayti, a Morrison & Foerster partner who represents Atmel in the employment and derivative suits, said Atmel would fight the claims and defended the Bergeson backdating investigation.
"The audit committee conducted an extensive investigation over a period of eight months, with the assistance of independent outside counsel and a major forensic accounting firm," the MoFo lawyer said.
Ross has also launched a suit in Delaware, claiming the company has unfairly stopped paying his legal bills in the derivative case.
LOCKED OUT
The overthrow of Atmel's executives is one of the most storied soap operas in recent Silicon Valley history.
It all began when Atmel's head of travel, Shahram Davani, was fired for a kickback scheme in 2005, in which he would buy airline tickets on the company credit card, get Atmel employees to pay him a much lower price by check and pocket that money for himself. An internal investigation of Davani led to the Perlegos brothers, Ross and another executive.
Daniel Bergeson and his team found that the executives had been paying small amounts in return for lots of travel on the company's dime: CEO George Perlegos had gotten 338 tickets for personal travel, paying $280 in checks to Davani for what cost Atmel $170,000. Ross bought at least 203 tickets with $4,849 in personal checks, while costing the company $158,000. This is according to an account of the investigation that was laid out in a court ruling in litigation between George Perlegos and Atmel.
When the board decided to fire them all, the ruling says, George Perlegos was in Greece on vacation where, he testified, he got calls about how "armed security ha[d] taken over Atmel; they [were] laying off people." Ross, whose role was larger than that of a typical GC, was in Europe closing the sale of Atmel's Grenoble, France, division when a board member called and fired him. A month later, the company also said it wouldn't pay all Ross' expenses for his European trip. He'd run up $12,366, and Atmel said it would only pay $5,872. To date, the company hasn't paid anything, Ross alleges in his lawsuit. When he returned from Europe, Atmel wouldn't let him into his office to get his belongings, he claims.
Ross also claims that he's owed a $1.4 million bonus for his work on the Grenoble deal.
In the end, the executives contested the travel scandal findings, claiming it was a ploy to oust the management. The company got Morrison & Foerster to double-check Bergeson's investigation -- and the MoFo lawyers concluded it was fair.
Steven Laub took over as CEO and David Sagushita took over as non-executive chairman of the board.
GONE BUT NOT FORGOTTEN
Like many other Silicon Valley companies, Atmel faced scrutiny for backdated stock options.
When it released the results of its internal probe to the world, it laid the blame squarely on Perlegos and Ross in an April 2007 press release.
"Mr. Ross was aware of, and participated in the backdating of, stock options," the release blared, although the company's audit committee conceded that Ross may have not understood the tricky accounting implications of backdating until 2002. It also leveled accusations that Ross backdated his own stock options.
In his lawsuit, Ross said the press release damaged his career and counts as defamation: "As a result of the reckless, false and misleading comments made by Atmel regarding Ross' culpability in Atmel's stock option troubles, Ross has had significant difficulty obtaining employment commensurate with his experience and background."
Orrick's Herzinger also said that others are to blame for the backdating troubles at Atmel.
"Any actions he did take were in conference with outside counsel, the finance department and members of the board," Herzinger said.
Atmel's outside counsel was Wilson Sonsini Goodrich & Rosati, which has been blamed by some executives and lawyers for blessing backdating at other companies that had options problems. "Certainly, discussions and conversations Mike had involved Wilson Sonsini," Herzinger said.
Wilson Sonsini partner Mark Bertelsen also served as a board member for Atmel at the time. Wilson Sonsini's spokeswoman did not return a call seeking comment before deadline.
Ross himself couldn't be contacted. He has no contact information on his State Bar entry, and his lawyers said they would comment for him.
