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Fired GC Loses Bid to Get Backdating Case TossedThe SEC's destruction of documents in Mercury Interactive case doesn't warrant dismissal, Judge William Alsup ruled, but it's possible jurors may be told about it.
2012-09-27 06:06:22 PM
SAN FRANCISCO A former in-house lawyer and two other defendants still fighting stock option backdating charges filed five years ago lost a bid to have their case dismissed over claims that the Securities and Exchange Commission mishandled millions of documents, but a federal judge Tuesday left open the possibility that the defense would be able to tell jurors about the deleted documents when the case goes to trial.
Defense attorneys for former executives from Mercury Interactive Corp., including former general counsel Susan Skaer, one of Silicon Valley's first in-house lawyers caught up in the backdating scandal, had asked the court in April to dismiss the SEC's case as a sanction for spoliation of evidence. In a supplemental filing, they asked alternatively for lesser sanctions, including an adverse inference instruction telling jurors that evidence had been destroyed.
Attorneys for the Mercury executives claimed the SEC had either lost or destroyed 5.7 million pages of documents in the case, including more than 500,000 pages of emails to or from the defendants. The SEC admitted to deleting documents, but said all the responsive and nonprivileged materials from the investigation had been given to the defense.
U.S. Magistrate Judge Jacqueline Scott Corley of San Francisco denied their requests in August, saying that the SEC had not acted in bad faith to warrant dismissal, and that the defense had not proven that the missing documents were relevant.
"While the SEC may not have followed its internal guidelines," Corley wrote in her 21-page order, "it does not change the reality that the SEC was attempting to cooperate ... and in the course of its cooperation it mistakenly deleted documents ... There was no intent to deprive anyone of documents."
Skaer's attorneys sought relief from Corley's order, saying she'd erred by requiring "bad faith."
Moreover, Corley had "credited the SEC with due diligence it never performed," wrote Michael Torpey, chair of Orrick, Herrington & Sutcliffe's securities litigation group.
But U.S. District Judge William Alsup, siding with Corley, denied the request Tuesday. "The magistrate judge did not commit clear error in determining there was no bad faith on the part of the commission," he wrote in his nine-page order.
However, if the lost documents become relevant during trial, slated to begin March 11, Alsup said the court may let the defense tell the jury that the SEC had deleted about 270,000 pages of documents that Mercury had given the commission.
Defense attorneys and attorneys from the SEC declined to comment.
Following an internal investigation by O'Melveny & Myers, Mercury fired Skaer and other senior executives in 2005. At that time the company stated that "each of them knew or should have known that the [option grant] practices were contrary to the options plan and proper accounting."
In May 2007, the SEC filed a complaint against Skaer and three other senior executives at Mercury alleging they had orchestrated 45 option grants between 1997 and 2002 and hid associated compensation expenses of $258 million, Securities and Exchange Commission v. Mercury Interactive, 07-02822. Mercury settled its case with the SEC in July 2007.
Three years ago, U.S. District Judge Jeremy Fogel of San Jose dismissed all the counts against Skaer, saying the SEC's allegations were too vague. The SEC filed an amended complaint a month later, adding more than 30 paragraphs describing Skaer's role in the backdating scheme. The case was reassigned to Alsup in September 2011.
Skaer now sells real estate in Palo Alto under the last name of Tanner.