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What does BEA Systems Inc.’s rejection of Oracle Corp.’s takeover bid have to do with backdated stock options? According to plaintiff lawyers going after BEA in a backdating derivative suit, a lot. Like other derivative suits, Shiffrin Barroway Topaz & Kessler’s action on behalf of the company claims that BEA’s directors and managers enriched themselves through the practice of backdating, and should pay damages. Their actions, plaintiffs say, cost the company money, as did the financial restatement that backdating triggered. With an amended complaint, plaintiffs lawyers add a new wrinkle: When directors rejected Oracle’s $6.7 billion takeover bid in October, they couldn’t have properly weighed the offer, because backdating had clouded the true value of BEA. Backdating has triggered a number of suits on behalf of shareholders. However, plaintiff lawyers have had a hard time proving shareholders were actually harmed by the practice, because often a company’s stock didn’t suffer. Shiffrin attorneys declined to comment, but observers from the defense bar say that throwing Oracle into the litigation is an interesting � if dubious � attempt to strengthen the case. “This strikes me as creative but unsound,” said Bruce Ericson, a veteran securities litigator with Pillsbury Winthrop Shaw Pittman who is not involved in the case. “Plaintiffs say that uncertainties about backdating prevent defendants from valuing the company. Not knowing anything more than what I read in the amended complaint, I don’t see why.” Ericson questioned whether uncertainties due to backdating that took place years ago could really affect the company’s value today. The complaint points to BEA’s Oct. 10 announcement that it would restate its earnings to take a $425 million options-related charge, exceeding earlier predictions between $340 million and $395 million, as an example of the uncertainty.
Optional Reading

Read The Recorder‘s roundup of the stock-option backdating scandal. There won’t be a test later … but there might be a subpoena.

Ignacio Salceda, a Wilson Sonsini Goodrich & Rosati partner representing BEA in the case, also declined to comment. Plaintiff lawyers have had mixed results in going after companies caught up in the backdating scandal. A federal judge dismissed two lawsuits against Apple Inc. in November, including one that argued that the stock price had been diluted because of backdating. In a big win for plaintiff lawyers, Mercury Interactive Corp. agreed to pay $117.5 million to settle shareholder suits in October. BEA was first sued in the summer of 2006 over backdating in the U.S. District Court for the Northern District of California. The company admitted to misdating options after an internal investigation in February of that year. The company has also been sued a number of times in Delaware over the company’s rejection of Oracle’s bid, including one suit from billionaire investor Carl Icahn, who took a big stake in the company and urged it to look for a buyer.

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