A federal judge ordered Oracle Corp. sanctioned in its long-running securities class action for willfully destroying, or failing to preserve, thousands of e-mails from company founder Larry Ellison and for failing to preserve audio recordings Ellison made with a British author for a book about the company.

The decision last week comes as a major blow to Oracle’s efforts to get out from under the class action and fight off claims of spoliation of evidence in the case, Nursing Home Pension Fund v. Oracle Corp., No. C01-988SI (N.D. Calif.).

U.S. District Judge Susan Illston of the Northern District of California held that it would be appropriate to tell jurors that they may infer from the loss of the Ellison e-mails and recordings made for the book that in 2000 Ellison knew about problems with a major product, Suite 11i; that he knew the adverse effects of the 2000-2001 dot-com bust on the company; and that he knew of problems with the company’s sales forecasting model.

Just 15 e-mails

Illston noted that Oracle turned over just 15 e-mails sent or received by Ellison from his e-mail files. Oracle attorney Patrick Gibbs of the Menlo Park, Calif., office of Latham & Watkins, argued that more than 1,650 of Ellison’s e-mails were produced from the files of other employees.

That was not enough for Illston. Without the ability of the plaintiffs to demonstrate that certain e-mails were found in Ellison’s files, Ellison could argue that he never read or received the e-mails sent to him and thus had no knowledge of their contents, she wrote. Oracle had an obligation to preserve his e-mails from at least March 13, 2001, she said.

The electronic discovery dispute centers on the fate of author Matthew Symonds’ audiotaped interviews with Ellison for Softwar: An Intimate Portrait of Larry Ellison and Oracle.

The interviews are critical to the plaintiffs because they were done during the very time Ellison and other top executives allegedly misled investors and falsified software sales during the market downturn in the 2000-2001 dot-com bust. The suit accuses Ellison of selling $900 million of his own stock before the bad news hit the market.

Illston said it appears Ellison “had the ability to preserve the Softwar materials at least until sometime in 2003,” long after the lawsuit was filed in 2001.

Plaintiffs’ attorney Mark Solomon of San Diego-based Coughlin Stoia Geller Rudman & Robbins could not be reached for comment. Gibbs of Latham & Watkins declined comment on behalf of Oracle.