Activision backdating

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My post earlier this week about the 5 million Activision Blizzard shareholder derivative lawsuit settlement – and in particular my suggestion that the Activision settlement may be the largest derivative suit settlement ever – provoked an interesting flurry of emails and conversations about the lineup of other large derivative lawsuit settlements.

The suits accused Costco’s board, and in particular members like Ben Carson who served on its “compensation committee,” with essentially cherry-picking the issue dates for Costco’s nonqualified stock options. Attorney’s Office for the Western District of Washington state came to similar conclusions after conducting a two-year investigation into Costco’s executive compensation practices. But this shareholders’ derivative suit covered a slightly wider range, 1995-2005, for the backdating fraud itself, and covered up to the date of the filing, 2009-ish, for all those “by-product” charges, like the inaccurate SEC filings. Their stats-heavy, 141-page consolidated complaint (which you can read in full here) was settled in plaintiffs’ favor in June 2011, forcing Costco to overhaul its corporate governance.As a director, Krug says, “Your obligation is to not be negligent, but under most states’ corporate law, you will not be held liable unless you acted grossly negligently—so negligently.”“That’s a really low standard—and most directors, even [those] that are negligent, pass it.”Carson received a nominal ,500 annually for his mental and physical exertions as one of Costco’s board members, according to financial disclosures recently filed with the FEC, in addition to another ,000-0,000 in annual dividends as a shareholder. “It means actually reading the thing.”“Typically—and I don’t know what Carson was given, in terms of information—but typically directors are given a lot of information before a board meeting,” she says.“I mean, each board typically has a counsel devoted toward advising the board on legal issues.It was a real job, in other words, with real pay and real obligations. The counsel certainly doesn’t want to be charged with any sort of malpractice later on.According to the complaint, for seven years beginning in December of 2002, Ben Carson annually signed off on materially false proxy statements (Form DEF 14A “definitive proxy statements,” if you’re nasty), that were filed to the SEC and then subsequently used by Costco’s shareholders to make crucial, “informed” votes about the company’s business at their annual meetings.Beginning in October of 2002, Carson’s position on the compensation committee meant that he was “delegated ultimate responsibility for administration of the Company’s 1993 Stock Option Plan and 2002 Stock Option Plan” according to the consolidated complaint, attending no less than four meetings from 2002-2004 “during which he engaged in backdating options.” For the duration of Carson’s appointment on the compensation committee, he also prepared and signed off on committee reports submitted with the annual proxy statements.

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