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In an upset for the securities plaintiffs’ bar, a federal jury in San Francisco found Friday that a former corporate official did not issue fraudulent financial statements before his company went bankrupt. The case, involving the defunct computer manufacturer Everex Systems Inc., is one of the few stock drop suits to go to trial and is believed to be the first such class action to go to a jury in the Northern District of California since Apple Computer Inc. was hit in 1991 with a $100 million verdict for misleading shareholders. “We were concerned that jurors wouldn’t be able to focus on the evidence in a particular case and would be carried away by everything else going on,” said Robert Varian, a partner at San Francisco’s Brobeck, Phleger & Harrison who represented defendant Steven Hui, Everex’s former CEO and chairman. The publicity over “accounting irregularities and companies going bankrupt and cooking their books along the way played into the plaintiffs’ case.” But, he said, the verdict showed that “despite the current environment you can try a case to a smart jury and count on them to render a verdict based on the law.” Varian said “a lot less than 1 percent” of the 250 securities fraud cases filed each year go to trial. Most get settled “usually for lots of money because the plaintiffs hold all the cards and juries tend to side with shareholders, not companies.” Plaintiffs initially sought $48 million in damages plus prejudgment interest. Before the case went to the jury, Varian said the plaintiffs offered to settle for $18 million. Shareholders filed Howard v. Everex Systems Inc., 92-3742, in 1992 claiming that Hui — and other company officials subsequently dropped from the suit — misreported the company’s financial statements in three successive quarters before the company collapsed. The case initially went to trial in 1998 but was dismissed by then-U.S. District Judge Charles Legge, who found Hui was not responsible for the financial statements. An appeals court reversed the ruling and sent the case back for a retrial. The second trial was held before U.S. District Judge Charles Breyer. Plaintiffs’ attorney Charles Peifer, a partner with Browning & Peifer in Albuquerque, N.M., said the defendants had an advantage since the original case was dismissed midtrial. It was a situation in which “the defendants had already seen your evidence and hadn’t put their own on,” Peifer said. The case was so “narrowed and confined that it made it difficult for the jury to find liability.” The jury was asked to decide on the liability of one officer who claimed to have been removed from authority the year prior to Everex’s bankruptcy. The verdict could affect future securities fraud cases, Varian said. Plaintiffs’ firms can “spend $6 million to $8 million of their own money on contingency fees and come up with nothing,” he said. “I think it will affect how they value these cases.”

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