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Plaintiffs Consolidate Class-Action Suits Against Affy for Backdating Stock Grants

A US District Judge has agreed to consolidate two separate class-action suits brought against a dozen former and current Affymetrix officials. The suits, filed by two of Affy’s shareholders, accuse the officials of pocketing close to $115 million by backdating stock option grants, according to court documents.
Last week, James Ware, a judge in US District Court for the Northern District of California, ruled that the court “deems the motions to consolidate cases and to appoint lead plaintiff and lead counsel appropriate for submission.”
The parties were scheduled to discuss case management with the court yesterday.
Attorneys for plaintiffs Irwin Berkowitz and Samuel Powers, who filed consecutive lawsuits in September, requested to combine their cases in an Oct. 13 filing with the court, arguing that both cases depend on the same facts, and “present virtually identical factual and legal issues, involve the same defendants, and will involve the same discovery.”
In the October letter, Berkowitz and Powers also asked to be named co-lead plaintiffs in the case, and recommended that Schiffrin & Barroway and Lerach Coughlin, the two legal teams representing Berkowitz and Powers, be appointed lead counsel in the case.
Moreover, the plaintiffs have argued that it will be more efficient for Affymetrix to litigate the actions as one case, rather than two. “Indeed, consolidation would ensure that this litigation, brought for the benefit of the company, is disposed of in the most cost-effective manner for the company,” counsel for the plaintiffs noted.
Representatives for Berkowitz and Powers did not return phone calls or e-mails seeking comment. Affymetrix could not be reached for comment.
Conjoined Claims
The first suit, which was pending in the United States District Court for the Northern District of California as of Sept. 12, accuses Affy and more than a dozen of its current and former officials of backdating grants of stock options, taking tax deductions based on those stock options, and making false statements related to the granting of those options [see BAN 9/12/2006].
The second suit, filed the following day in the same court, accuses 12 Affy officials of diverting “hundreds of millions of dollars of corporate assets to themselves via the manipulation of grant dates associated with hundreds of thousands of stock options granted to Affymetrix insiders [see BAN 9/26/2006].”
By consolidating the cases, a master list of defendants has also been created, as both cases originally named different officials. The combined suit now names as defendants CEO and Chairman Stephen Fodor; President Emeritus Sue Siegel; Chief Financial Officer Greg Schiffman; and General Counsel Barbara Caulfield.
The suit also implicates Thane Kreiner, Affy’s senior vice president of sales and marketing; Susan Desmond-Hellman, a director and member of the firm’s compensation committee; and Robert Trice, a director and member of the company’s audit committee. Additionally, Richard Rava, head of product development, and Kenneth Nussbacher, a company fellow, were named.

“Consolidation would ensure that this litigation, brought for the benefit of the company, is disposed of in the most cost-effective manner for the company.”

Rounding out the list are current board members John Young, David Singer, Vernon Loucks, John Diekman, and Paul Berg, and Ronald Verdoon, a former senior transition team member; Edward Hurwitz, a senior advisor until 2002; and Vernon Norviel, general counsel until 2001.
The case is built on a “review of the stock options granted to Affymetrix’s top executives from 1998 to 2002” that allegedly “indicates that their options were dated and purportedly granted on days when Affymetrix stock traded at historically low prices, and immediately before dramatic stock increases,” the plaintiffs noted in their Oct. 13 letter.
“This improper practice caused the company to grant hundreds of thousands of under-priced stock options to the officer defendants resulting in the improper and excessive compensation of these individuals, the understatement of the company’s expenses, and the artificial inflation of Affymetrix’s publicly reported financial results,” the plaintiffs stated.

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