In a post from April 27, 2008, this blog discussed a pair of noteworthy decisions, by Judge William Alsup of the United States District Court of the Northern District of California, in two options backdating lawsuits involving Zoran Corporation and CNET Networks. As it turns out, Judge Alsup's intense scrutiny of those settlements has had a therapeutic effect on the value of the settlement.
As described by Forbes.com, Judge Alsup was less than pleased with the manipulation of the value of the settlement by Plaintiff's counsel:
“The lawyers painted the value of the package as $1.6 million, based on a Dec. 3, 2007, stock price of $21.99 a share. When Alsup asked how they arrived at that date, lawyers first indicated that was when they had signed a memorandum of understanding, but when Alsup ordered a copy of the memorandum, it turned out to have been signed Dec. 21 and wasn't filed with the court until Feb. 26. By then Zoran's stock was down 50%, and the options concessions were worth far less.
(Daniel Fisher, Fee Fixers (June 9, 2008) www.forbes.com.) Judge Alsup described the initial settlement as having a value of, potentially, a meager $200,000, and quite possibly less. In a revised settlement filed May 29, 2008, $3.4 million in hard cash materialized ($3 million from Zoran's insurance company and $395,000 from Zoran Chief Executive Levi Gerzberg and another executive). Keller Rohrback, counsel for plaintiff, had the confidence (chutzpah? nerve? temerity?) to request $1.5 million in fees and expenses, $300,000 more than the first time around. (Ibid.)
I would guess (and it is only a guess) that the publicity surrounding Judge Alsup's scrutiny and criticism of pigs with lipstick may rub off on other judges that routinely handle class action matters. Thus, it would benefit both sides of the settlement equation to be sure that a motion for preliminary approval does not mislead the Court, hide negative facts, or avoid self-criticism. A dose of introspection may lend credibility to the motion for preliminary approval.