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JDS Uniphase Wins Rare Securities Trial

Going against the grain, the company wouldn't settle a five-year lawsuit alleging its executives should have known the dotcom boom would bust, leading to $18 billion in losses.
Stephen Taub, CFO.com | US
November 28, 2007

JDS Uniphase has won a securities class-action lawsuit, which rarely get decided by a jury.

On Tuesday, jurors for the U.S. District Court for the Northern District of California ruled in favor of the company on all claims filed by Connecticut Retirement Plans and Trust Funds.

Nearly five years ago, the shareholders brought the case against the supplier of components of fiber-optic telecom networks and four former officials: chief executives Kevin Kalkhoven and Jozef Straus, CFO Anthony Muller, and chief operating officer Charles Abbe.

The suit alleged that the company — whose stock was one of the most popular during the dotcom era — and the executives unduly cost shareholders $18 billion by overstating the company's financial health before the stock plummeted.

"We are extremely gratified by the jury's verdict, as we have always believed that the plaintiffs' claims were without merit," said Kevin Kennedy, JDS president and CEO. "We will continue focusing our full attention on developing innovative products and delivering on the significant potential of our business model to create shareholder value."

Usually, a CEO doesn't find himself in a position to know with certainty how a jury would react in a securities lawsuit. An estimated 99 percent of these kinds of cases are either settled or dismissed. When such a suit does go to trial, however, the company usually prevails, according to the Associated Press.

As for the plaintiffs, their lawyer Barbara Hart told Reuters it was too early to say if they would appeal the verdict. Earlier this year, Hart told CFO.com she was confident her client would win even after a U.S. Supreme Court decision on the Private Securities Litigation Reform Act that other observers considered a major boon for corporations. The high court said litigating shareholders must have "cogent and compelling facts" to prove a company intentionally misled investors, and therefore committed fraud.

According to Reuters, the shareholders insisted the executives knew in 2000 that their customers would cut their orders by more than $1 billion during the following year at the same time they were promoting the company's prospects in conference calls, securities filings, and news releases. Meanwhile, the executives were selling hundreds of millions of dollars in company stock near its highest level, Reuters noted.

In the executives' defense, their attorneys asserted that they had in fact sold a smaller percentage of their shares in August 2000 than they had in the past and retained a large majority of their holdings in the company.

In the end, jurors believed the executives had no way of predicting future industry trends and did not behave any differently during the period in question, according to Reuters. "That was the main thing — the lack of the ability to forecast what would happen in 2001," juror Ann Nelson told the wire service.

JDS said in a press release that while the jury's decision in this case is a significant milestone, it continues to defend itself in related litigation.




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