Lawrence J. Ellison, Oracle Corporation’s chief executive officer, has agreed to make $100 million in charitable donations in the company’s name to settle a lawsuit accusing him of insider trading. The settlement was reached following more than four years of litigation. Attorneys from Berman DeValerio’s San Francisco office acted as co-lead counsel in the litigation.
Over the next five years, Ellison will donate $100 million in Oracle’s name to a charity or institution approved by the company. Ellison, who denies any wrongdoing, will also pay a total of $22 million to plaintiffs’ counsel in legal fees and expenses associated with the case’s prosecution.
The settlement is believed to be the largest of its kind in a derivative action. Notably, Ellison will pay the money himself, without any contribution from directors’ and officers’ liability insurance. In addition, the lawsuit caused Oracle to tighten its insider trading guidelines.
The unusual settlement received approval Nov. 22 from San Mateo Superior Court Judge John G. Schwartz, who had raised questions about an earlier settlement agreement in September. Under the original agreement, Oracle would have paid plaintiffs’ attorneys’ fees and expenses, rather than Ellison.
“We took what was already an excellent settlement and made it even better,” said Joseph J. Tabacco Jr., the Berman DeValerio partner who oversaw the case. “We were able to address the court’s concerns to the company’s benefit.”
The groundbreaking settlement was approved by independent members of Oracle’s Board of Directors, who determined that it was in the best interests of the company and its shareholders.
The agreement resolves litigation that began following the 2001 allegations of insider trading, Tabacco said. Ellison and Oracle have also acknowledged that recent changes to the company’s insider stock trading policies were made as a result of the prosecution of this case.
The changes to Oracle’s policies substantially reduce the likelihood that Oracle insiders will decide to make a trade they may not otherwise have made because of their knowledge of inside non-public information.
For example, with insiders now using program trading plans, Oracle minimizes its exposure to any future litigation. Stricter pre-clearance procedures and narrower trading windows also offer greater protections against insider trading.
In derivative lawsuits, damages are usually paid directly to the company. But because Ellison reportedly owns 24.5% of Oracle’s stock, such a direct payment would have significantly benefited Ellison himself. The $100 million in charitable donations will benefit Oracle while limiting the amount flowing back to Ellison, Tabacco said.
“The primary purpose of the California insider trading law was not to reimburse the company, but to deter insider trading,” said Nicole Lavallee, the partner who handled the day-to-day prosecution for the firm. “We believe this settlement does just that.”
Significantly, this settlement was achieved even after the Delaware Chancery Court already had dismissed similar claims filed in that state.
The lawsuit accused Ellison of selling Oracle shares worth approximately $894 million prior to the release of news that the company would not meet its earnings target. Ellison had sold his shares for an average price of $30.76. After the earnings announcement, the shares closed at $16.88.
*In August 2017, our firm name changed to Berman Tabacco. Case references and content published before that date may refer to the firm under our prior name, Berman DeValerio.