A California federal judge has given preliminary approval to Marvell Technology Group Ltd.’s agreement to pay $72.5 million to end an investor class action alleging the company’s stock dropped 16 percent after inflated revenue projections didn’t pan out. The approval came two days after the company proposed the settlement and nearly two months after U.S. District Judge William Alsup certified a class of investors in their claims that the company used accounting tricks to make its financial performance look better than it actually was.
The plan stated in a motion for preliminary approval:
Lead plaintiff believes that the claims asserted in the litigation have merit and that the evidence developed to date supports the claims. However, lead plaintiff and its counsel recognize and acknowledge the expense and length of continued proceedings necessary to prosecute the litigation against defendants through trial and through appeals.
Judge Alsup has scheduled a settlement hearing for final approval on April 17, 2018, and appointed Gilardi & Co. LLC as the claims administrator for the class. The judge wrote:
The court approves, as to form and content, the notice of proposed settlement of class action … the proof of claim and release form … and the summary notice.
Plumbers and Pipefitters National Pension Fund, the lead Plaintiff, said that a settlement would help the parties avoid a long fight over the veracity of the investors’ claims. The shareholders alleged that the semiconductor company inflated its revenue figures by “cannibalizing” expected future sales and making them look like current sales, an argument the investors said was bolstered by recently proffered internal documents from Marvell’s forensic accountant, KPMG LLP.
The suit, filed in September 2015, claimed that Marvell borrowed from future sales to inflate its quarterly revenue numbers in U.S. Securities and Exchange Commission (SEC) filings, and that those “pull-in transactions” were the result of a numbers-obsessed culture at the company. The suit was filed soon after the company reported a loss of $382.4 million for its fiscal second quarter, a period analysts had predicted would end in a $11.9 million profit. When the news became public, Marvell stock took a 16 percent hit of $1.71 per share.
PricewaterhouseCoopers LLP, Marvell’s longtime auditor, resigned in 2015, spurring chatter about whether its management knew of its securities violations, according to the shareholders. In September, the shareholders won a bid to see some work papers from the company’s forensic accountant, court records show. In October, Judge Alsup heard arguments on why the claims should be heard as a class, and then certified a narrower than requested group, limiting the class to investors who had bought in from February 2015 to December of that year.
The shareholders are represented by Ellen Gusikoff Stewart, Jonah H. Goldstein, Scott H. Saham, Matthew I. Alpert, Carissa J. Dolan, Shawn A. Williams and Jason C. Davis of Robbins Geller Rudman & Dowd LLP; and Louis P. Malone of O’Donoghue & O’Donoghue LLP. The case is Luna et al. v. Marvell Technology Group Ltd. et al., (case number 3:15-cv-05447) in the U.S. District Court for the Northern District of California.