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Aug 5 2008   1:36PM GMT

Law firm settles backdating suit with Brocade for $9.5 million

Beth Pariseau Beth Pariseau Profile: Beth Pariseau

Former Brocade outside counsel Wilson Sonsini Goodrich & Rosati has agreed to pay Brocade $9.5 million to settle a lawsuit the company is bringing against 11 of its former board members and executives in an attempt to recoup what it says are $830 million in costs relating to options backdating charges against former CEO Greg Reyes. The news of the settlement was first reported today by The Recorder.

The original report also shows how Brocade arrived at the $830 million figure:

The voluminous complaint details what the backdating scandal cost Brocade, including $160 million to settle the securities class action, and $7 million to settle SEC charges. The company spent about $7.5 million on its two internal investigations and another $67 million defending Reyes, Jensen and other former executives and $30 million defending itself.

The complaint also said Brocade lost $470 million when the backdating scandal dashed a proposed merger with Cisco.

According to law.com, Wilson Sonsini were named defendants in an earlier derivative lawsuit filed in California’s Northern District court in April, which has been consolidated into the new suit filed last Friday and reported by the Recorder. The original complaint relating to that case cites a 2006 piece by Business Week reporter Peter Burrows, where the revelation of the scuttled Cisco acquisition was attributed to Reyes.

“A successful sale of the Company potentially could have expunged defendants of their liability to Brocade for the stock option manipulation then under investigation by the Audit Committee,” according to the April court filing.

For those of us out here watching with popcorn, it’s fun to think about how different things might have been if Cisco did buy Brocade back then. Today, Cisco would likely be selling Brocade switches as its midrange platform and McData would probably still be foundering on its own.

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