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When Diplomacy Fails: Litigation Developments

When Diplomacy Fails: Litigation Developments. Travis E. Downs III Bruce Gamble July 10-12, 2013. Largest Plaintiffs’ Securities Litigation Firm. 180 Lawyers in 9 offices, including former Federal & State prosecutors and SEC Lawyers

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When Diplomacy Fails: Litigation Developments

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  1. When Diplomacy Fails: Litigation Developments Travis E. Downs III Bruce Gamble July 10-12, 2013

  2. Largest Plaintiffs’ Securities Litigation Firm • 180 Lawyers in 9 offices, including former Federal & State prosecutors and SEC Lawyers • 250 Professionals, including Forensic Accountants and Investigators New York (2) Chicago San Francisco Philadelphia Washington, D.C. San Diego Atlanta Boca Raton

  3. …. TOTAL RECOVERY – $7.3 billion

  4. Lead Plaintiff: CalPERS Lead Counsel: Robbins Geller • $925 Million Recovery • 18 times greater than average • 4 times greater than the next • largest backdating settlement • $30 million in cash paid from • CEO’s own pocket • Corporate Governance Reforms • Shareowner Nominated Director • Lead Independent Director • Executive Compensation Linked to • Performance • Minimum Holding Period for Shares • Obtained via Option Exercise

  5. “[Backdating options] isn’t a question about ‘Whoops, I may have (accidentally) crossed a line here’ . . . It’s a question of knowingly betting on a race that’s already been run.” Former SEC Chairman Christopher Cox “Backdating "represents the ultimate in greed,… It is stealing, in effect. It is ripping off shareholders in an unconscionable way.”“ Former SEC Chairman Arthur Levitt

  6. CEO, COO, CTO and CFO paid $9.6 million in cash and $22 million in options and shares -- 57% of total damages • 5 officers and directors paid $9.2 million in cash and $9.4 million in options and shares -- 43% of damages recovered • CEO and Chairman and SVP paid $9.5 million in cash -- 31% of damages recovered • CEO and EVP paid $30 million in options -- 100% of damages recovered • 7 officers and directors paid $22 million in cash and options -- 89% of damages recovered • CEO paid $3.9 million in options -- 23% of damages recovered • 4 officers and directors paid $22.6 million in options -- 100% of damages recovered

  7. Thanks to a “say on pay” clause in last year’s Dodd-Frank financial-reform law, the pay of every senior executive of an American public company is now subject to a shareholder vote.

  8. Negative Say-On-Pay Votes 2011: Approximately 2,300 reported votes 45 failed votes 2012: Approximately 2,215 reported votes 52 failed votes 2013: Approximately 2,634 reported votes 55 failed votes

  9. Reasons for Failed Say-On-Pay Votes • Poor stock price performance vs. high CEO and top executive pay • Magnitude of CEO and top executive pay • Poor executive compensation pay practices • Use of an inappropriate peer group

  10. Judicial Review of Executive Compensation “The directors of a Delaware corporation have the authority and broad discretion to make executive decisions. . . . . [H]owever, the discretion of directors in setting executive compensation is not unlimited. Indeed, the Delaware Supreme Court was clear when it stated that “there is an outer limit” to the board’s discretion to set executive compensation, ….” In re Citigroup Inc. Shareholder Derivative Litigation, No. 3338-CC, Delaware Chancery Court. “Executive compensation, however, is not a realm in which less than forthright disclosure somehow provides a company with an advantage with respect to competitors…. When directors speak out about their own compensation, or that of company managers, shareholders have a right to the full, unvarnished truth.” In re Tyson Foods, Inc. Consolidated Shareholder Litigation, No. 1106-CC, Delaware Chancery Court.

  11. “. . . Dodd-Frank explicitly states that say-on-pay votes “shall not be binding” on a company or its board of directors. . . . Plaintiff’s allegations and arguments in this litigation fail to recognize these realities of Dodd-Frank.” Raul v. Rynd, et al., No. 11-560-LPS, U.S.D.C., Delaware

  12. “Although a ‘say on pay’ vote may be reasonably considered as a factor in the demand futility analysis, it is not conclusive in this case.” Weinberg v. Gold, et al., No. JKB-11-3116, U.S.D.C. Maryland

  13. “Looking to precedent from other courts that have interpreted the shareholder vote provision of the Dodd-Frank Act, as well as the purpose of the Dodd-Frank Act, this court concludes that a shareholder vote on executive compensation under the Act has substantial evidentiary weight and may be used as evidence by a court in determining whether the second prong of the Aronson test has been met….” Laborers’ Local v. Intersil, et al., No. 5:11-CV-04093 EJD, U.S.D.C., N.D. Cal.

  14. Travis E. Downs III Bruce Gamble Robbins Geller Rudman & Dowd LLP www.rgrdlaw.com 800/449-4900

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