Risk & Compliance

Backdating Claim Against Openwave to Proceed

Ex-CFOs and CEOs are kept on the hook in a shareholder lawsuit.
Stephen TaubNovember 5, 2007

A federal judge permitted a shareholder lawsuit to go forward against Openwave Systems and nine former executives in an alleged stock-option backdating scheme. The defendants include two former chief financial officers and two former CEOs.

In an opinion dated Oct. 31, U.S. District Judge Denise Cote denied the defendants’ request to throw out the case, according to wire service reports.

The suit, brought by the Arkansas Teachers Retirement System, alleged that four former executives, including CFO Alan Black, had received backdated options, according to Reuters, citing Cote’s ruling.

The judge also let stand another count that names ex-CFO Harold Covert, among others, in connection with their positions of control at the company. Claims have also been filed against three directors who served on the company’s compensation committee.

“This is a groundbreaking decision because there are very few decisions in this area going one way or another,” Chad Johnson, of plaintiffs’ attorneys Bernstein Litowitz Berger & Grossmann, told Reuters. “This is a detailed and well-reasoned decision. It will be, I suspect, looked at by courts across the country who are considering similar cases.”

Openwave announced in May 2006 that the Securities and Exchange Commission had launched an informal inquiry and was requesting related documents. Five months later, the company said it planned to restate prior results related to non-cash charges for stock-based compensation. At the same time, it acknoweledged that the measurement dates for financial accounting purposes of stock option grants differed from recorded grant dates for awards.