Kalkhoven JDSU case may go to trial UPDATE This letter sent to all JDS Uniphase shareholders provides more information on this class action lawsuit.
07/06/07 Shareholder class-action lawsuits rarely go to trial, but a long-running case against JDS Uniphase Corp., a late 1990s stock market darling that nearly collapsed when the tech bubble burst, could soon be an exception.
Investors embraced the fiber optics parts provider during the dot-com boom as it went on a dizzying merger spree, but they quickly soured on JDSU, which rang up a staggering $50.6 billion net loss in fiscal 2001 when business spending on telecommunications products stalled.
Its shares plunged 99 percent, erasing billions in stockholder value, and the company laid off thousand of workers. Now, JDSU, a much smaller version of its former self, and four former top executives are preparing to go to trial in October to defend themselves against a shareholder lawsuit stemming from the company's huge stock declines.
These cases face many hurdles for plaintiffs. Just last week the Supreme Court raised the bar for investors pursuing securities fraud claims, ruling that they need to make a compelling case that the defendants' intended to deceive or else the suits can be thrown out.
The lead plaintiff, the Connecticut Retirement Plans and Trust Funds, contends the company concealed information that its business prospects were deteriorating while insiders were unloading hundreds of millions of dollars of their own shares.
"The basic allegation is that the company knew that disaster was imminent but continued to reassure investors that everything was fine," said Richard Blumenthal, Connecticut's attorney general. "At the same time, company executives were selling large sums of their own shares and shareholders, like our pension funds, suffered big losses."
The lawsuit says stockholders lost about $20 billion. The Connecticut fund says it lost about $65 million.
JDSU has denied any wrongdoing. A company spokeswoman declined to comment on the case beyond JDSU's stance in its court papers that statements about performance were not misleading and that the amount of the stock sales by the former executives were consistent with their past sales.
JDS Uniphase was created by the June 1999 merger between JDS Fitel, a Canadian telecommunications equipment maker, and Silicon Valley-based Uniphase. It quickly became a Wall Street favorite and expanded through a string of purchases.
But according to the shareholder plaintiffs, the company knew by early-to-mid 2000 that business was slowing and top executives started dumping stock before the bad news was made public.
Plaintiffs say that four former top JDSU officials -- former chief executives Kevin Kalkhoven and Jozef Straus, former chief financial officer Anthony Muller and ex-chief operating officer Charles Abbe -- sold more than $391 million worth of JDSU stock between July 31 and August 31, 2000.
Other insiders sold stock worth an additional $503 million in that same period, according to the plaintiffs.
At the same time, the plaintiffs contend, the company failed to disclose major declines in forecast sales to top customers including Lucent and Nortel.
Lawyers for JDSU, who also represent Straus, Muller and Abbe, have said in court filings that the defendants acted appropriately. A lawyer for Kalkhoven, who stepped down as CEO in May 2000, told Reuters that his client did nothing wrong and was confident he would be vindicated at trial.
"He retired when the company was going like gangbusters and it continued to go like gangbusters for several quarters after he left," said attorney Michael Shepard. "The allegation that he knew anything other than that those good times would continue, as they did continue, is completely false."
On the orders of the judge overseeing the case, the parties have held mediation talks, said Barbara Hart, a partner at law firm Labaton Sucharow, who represents the shareholders. But she said her clients are preparing for their day in court. "I fully expect that we will need to take this case to trial," she said. More at Reuters