The Connecticut Retirement Plans and Trust Funds has lost a class action lawsuit against JDS Uniphase. A jury found last week that the California-based fiber optics company and four former executives are not liable for shareholders’ losses in the dot-com meltdown because the company could not have foreseen its staggering losses.
The state pension fund initially brought the suit when it lost $65 million in JDS Uniphase investments. The fund accused the company of securities fraud and insider trading. But a unanimous jury in the U.S. District Court for the Northern District of California ruled in favor of the corporation, denying Connecticut claims of malfeasance.
“The jury concluded that while things for the company went sour in 2001, people on the inside did not know it was coming,” lawyer Michael Shepard, who represents former JDS Uniphase chief executive Kevin Kalkhoven, said in an interview after the verdict.
“We are, of course, disappointed in the outcome, but I remain proud of Treasurer Denise Nappier’s conviction to protect the value of Connecticut’s investments and the integrity of our nation’s securities markets,” said Catherine LaMarr, general counsel for the state treasury. “We will continue to pursue these matters, as appropriate.”
Connecticut Attorney General Richard Blumenthal stands firmly behind the state’s claim made in the lawsuit. “We are deeply disappointed by this verdict,” Blumenthal said in a written statement. “In the coming days, we will carefully scrutinize the court’s rulings and the jury’s decision, and explore possible additional legal options. This verdict will not deter us from fighting to uphold and protect shareholder rights.”
Rare Case
The lawsuit, filed by the state of Connecticut and other plaintiffs, is a rare case of a shareholder class action going to trial instead of being settled out of court. But shareholder cases that have gone to trial have ended in the companies’ favor more often than the plaintiffs’.
The state, along with the other class action plaintiffs, who can appeal the ruling, were seeking more than $20 billion in damages. They claimed that investors lost money because the company lied to investors when it continued offering rosy sales projections while demand for its products had suddenly and precipitously declined. They said the company had secret internal sales data foreshadowing the meltdown but kept it from shareholders.
Four former executives — Kalkhoven and Jozef Straus, both former chief executives, and former Chief Financial Officer Anthony Muller and former Chief Operating Officer Charles Abbe — were accused of acting on that information and improperly unloading more than $500 million of their own stock in JDS Uniphase between 1999 and 2001.
JDS Uniphase lawyers argued that the company was caught off guard along with the rest of the technology industry when the dot-com spending spigot was suddenly turned off, and it continued to believe demand would remain robust.
The lawyers said the executives’ stock sales were proper and fell within their normal trading patterns.
Christopher Dewees, JDS Uniphase’s chief legal officer, said the company participated in multiple settlement talks since the lawsuit was filed in 2002, but the parties remained “very far apart.”
“The company is obviously extremely pleased that the jury recognized that this case is without merit,” he said in an interview. “But it is obviously chagrined to have spent the time, effort and money over the past 6 years to achieve this verdict.”
He declined to disclose how much the case has cost the company in legal fees.
JDS Uniphase makes equipment that was in hot demand as telecommunications carriers built out their Internet infrastructure to handle swelling traffic from startups. But the company’s finances withered when demand did.
It lost $65 billion in 2001 and 2002, more than 16 times its total sales during those years, and has failed to turn an annual profit since.
Since new laws governing class action securities lawsuits were enacted in the mid-1990s, just 16 such cases have gone to trial, according to the RiskMetrics Group financial research firm. Many were settled before the jury was to begin deliberating.
Of those cases decided by a jury, most went for the defendant companies.
An AP report is included.
