Broadcom Settles Backdating Case For $118 Million; Lawyers' Fees Exceed Amount

Susan Beck writes an insightful piece on the Broadcome settlement and how the attorneys for both sides are likely to end up the only winners in this derivative suit alleging backdating which settled for $118M:

We're still scratching our heads over this one. Last week, Broadcom announced in an 8K filing https://webmail.missionpharmacal.net/owa/redir.aspx?C=c80dfef620334df18482a43003766fc6&URL=http%3a%2f%2feditorial.incisivemedia.com%2fc%2f12eTn3MHrjolUOU5Y4 that it had settled a stock option backdating derivative suit for $118 million. If approved by Los Angeles federal district court judge Manuel Real, it would be the second-largest backdating settlement for a derivative suit (behind UnitedHealthcare), and one of the biggest derivative settlements ever, according to Kevin LaCroix of The D & O Diaryhttps://webmail.missionpharmacal.net/owa/redir.aspx?C=c80dfef620334df18482a43003766fc6&URL=http%3a%2f%2feditorial.incisivemedia.com%2fc%2f12eTnt12n7cJbZEoKR.Depending on how you look at it, it could appear that all the money will be used to pay lawyers, on the plaintiffs and defense side. You see, Broadcom is liable for a whopping $130 million in attorneys' fees racked up by the 19 officers and directors caught up in backdating charges, including two who face criminal counts. The $118 million that Broadcom will receive--which is coming from its D&O insurers under a settlement--will be eaten up by the $11.5 million fee for the plaintiffs' lawyers and this $130 million-plus defense tab. Broadcom is obligated to pay these defense fees under the indemnification agreements it signed with these officers and directors.You can find the derivative settlement herehttps://webmail.missionpharmacal.net/owa/redir.aspx?C=c80dfef620334df18482a43003766fc6&URL=http%3a%2f%2feditorial.incisivemedia.com%2fc%2f12eTnSfniV16taoHxE. A copy of Broadcom's settlement with its insurers (which mentions the $130 million legal tab) can be found herehttps://webmail.missionpharmacal.net/owa/redir.aspx?C=c80dfef620334df18482a43003766fc6&URL=http%3a%2f%2feditorial.incisivemedia.com%2fc%2f12eTohtIeIPtKl90kr.David Siegel of Irell & Manella, who represents Broadcom, offers a different take on this settlement. "The $118 million represents a payment to Broadcom for its benefit, and the attorneys' fees incurred and yet to be incurred are just one part of the alleged damages the plaintiffs were seeking in this case." He adds that the insurers had disputed their obligation to cover these fees, so it wasn't certain that, absent this settlement, Broadcom could have recovered from its insurers anything close to the full amount it has paid to these defendants' lawyers. "[The insurers] disputed whether they owed anything," he said. Before the settlement, the insurers had paid just $43.3 million of the more than $130 million sought by Broadcom. (This $43.3 million is included in the $118 million settlement amount.)The plaintiffs lawyers who brought the derivative suit--led by Lieff, Cabraser, Heimann & Bernstein--have dropped or released claims against 16 individuals as part of their settlement. The settling defendants deny any wrongdoing. The plaintiffs still have claims against three defendants, including Broadcom cofounders Henry Nicholas III and William Ruehle, who both face criminal charges.Broadcom used David Steuber of Howrey to negotiate with its insurers. Broadcom's special litigation committee was represented by Kaye Scholer.We briefly reached Richard Heimann at Lieff Cabraser as he was about to board a flight, but his cell phone connection ended before we could discuss the settlement in any detail. We left messages for other lawyers at his firm but have not heard back.--Susan Beck