X

Thank you for sharing!

Your article was successfully shared with the contacts you provided.
After deliberating for mere hours, a federal jury Tuesday returned a $170.7 million verdict on behalf of former shareholders of an allegedly sham software company. Included in the unanimous eight-person jury’s verdict is $165 million in punitive damages, hailed as a signal that post-Enron juries are going to be tough on allegations of financial fraud. The damages are attributable to “the absolute brazenness of the [defendants'] conduct and their utter and complete lack of remorse,” said Richard Heimann, a Lieff Cabraser Heimann & Bernstein partner in San Francisco. “This was business as usual.” The case is a successor to a shareholder suit over the collapse of Scorpion Technologies Inc., which was raided by the FBI and Securities and Exchange Commission in 1993. Criminal charges against a number of former employees ensued. The present case was brought against British company Edsaco Ltd. in 1998. Using overseas addresses, Edsaco allegedly provided shareholders and directors for phony European companies set up by Scorpion to purchase non-existent software. Such shareholders and directors can help put a company in a more favorable tax situation, among other considerations. The Edsaco case came after Lieff Cabraser brokered a deal with Grant Thornton, Scorpion’s former auditors, to release Grant Thornton from liability in exchange for cash considerations and the assumption of any legal claims Grant Thornton had against Edsaco. “Grant Thornton had been deceived into certifying [Scorpion's] financial situation,” Heimann said. Heimann said the securities fraud suit is inactive because Scorpion no longer has assets. Duane Morris partner Daniel Herling, who represented Edsaco, said an appeal is assured, but before filing it, Edsaco will ask U.S. District Judge Susan Illston of the Northern District of California to overturn the verdict as a matter of law. “I thought the verdict was unwarranted and excessive, and we feel it will be overturned on appeal,” Herling said. The two-week trial got under way April 3, but the jury returned its verdict after little more than three hours of deliberation. “I think the evidence was overwhelming,” Heimann said. Lieff Cabraser’s case was no doubt aided in 1994, when it hired Robert DeMaria as an investigator — who until then was the FBI agent assigned to investigate Scorpion. Last week, former Scorpion employee Jack Dawson was sentenced to 2 1/2 years in prison for securities fraud and money laundering by Judge Illston. Heimann said a company can use Edsaco and similar companies to conceal the identity of its true owners. This can protect the company from legal action by assigning directors who live in countries that don’t recognize U.S. law. “You don’t know from the outside that these aren’t the real directors,” Heimann said. In Claghorn v. Edsaco, 98-3039, it was the concealment of the ownership of the European companies that allegedly allowed the fraud to happen. The complaint states that the directors designated by Edsaco confirmed to Grant Thornton the fraudulent software sales. Herling disputed that there was any skullduggery afoot. “All of the guilty pleas [in the criminal cases] lay out what happened, and none of them mention Edsaco,” he said. Heimann will now turn his efforts to recovering the $5.7 million in compensatory damages and $165 million in punitives, which is by no means assured — Edsaco says it is now dormant and does no business. “I think that’s all bogus,” Heimann said, adding that he believes the company’s assets were shifted to new companies. “Now that we’ve got the verdict, what I’m going to do now is go after the successor companies.”

This content has been archived. It is available exclusively through our partner LexisNexis®.

To view this content, please continue to Lexis Advance®.

Not a Lexis Advance® Subscriber? Subscribe Now

Why am I seeing this?

LexisNexis® is now the exclusive third party online distributor of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® customers will be able to access and use ALM's content by subscribing to the LexisNexis® services via Lexis Advance®. This includes content from the National Law Journal®, The American Lawyer®, Law Technology News®, The New York Law Journal® and Corporate Counsel®, as well as ALM's other newspapers, directories, legal treatises, published and unpublished court opinions, and other sources of legal information.

ALM's content plays a significant role in your work and research, and now through this alliance LexisNexis® will bring you access to an even more comprehensive collection of legal content.

For questions call 1-877-256-2472 or contact us at [email protected]

 
 

ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2020 ALM Media Properties, LLC. All Rights Reserved.