Judge OKs $50M SanDisk investor class settlement

SAN FRANCISCO -- SanDisk LLC resolved for $50 million Thursday a long-running legal battle over accusations it misled investors about the health and prospects of its digital storage business.

U.S. District Judge Vince Chhabria comfortably approved the settlement with no objectors in the securities class action.

Chhabria also agreed to $12.5 million, or 25% of the settlement, in attorney fees.

The award is similar to other cases, arguing plaintiffs' attorneys dedicated roughly 29,000 hours to the case to depose former employees, certify the class and oppose summary judgment, among other work, according to Max R. Schwartz, who represented the investors.

Led by Union Asset Management Holdings AG, the investors alleged SanDisk intentionally and falsely touted its financial prospects from October 2014 to April 2015 by stating it had a "market leadership position" and "strong demand signals" from customers and was "firing on all cylinders." It had bought storage hardware and software systems manufacturer Fusion-io for approximately $1.1 billion in 2014 and publicized the acquisition as the reason the company would achieve $1 billion in revenue in 2015.

Fusion-io actually "badly missed" SanDisk's internal sales forecasts in back-to-back quarters from 2014 to 2015 as the chipmaker was "unable to integrate" its addition to the company's enterprise storage offerings as planned, according to court filings by Deborah Clark-Weintraub, who is representing the investors.

"SanDisk's 'legacy' enterprise business was also performing poorly due to designs riddled with bugs, an inability to qualify those products with potential customers, and SanDisk's consequent over reliance on outdated products, all of which had been adversely impacting sales," the Scott+Scott LLP attorney wrote.

Experts for plaintiffs' attorneys estimated maximum damages at $361 million while defense experts estimated maximum damages at $85 million.

Three years after filing suit, the group of investors settled with SanDisk for $50 million just three months before trial. The figure represents 14% to 58% of potential recovery if the case went to trial, according to Clark-Weintraub, adding that it "far exceeds" settlements in similar cases.

Plaintiffs' attorneys cited the defense's argument the alleged qualitative misstatements prior to January 2015 were "immaterial puffery," which threatened to cut the class period in half, and they could lose the "battle of the experts" on damages as considerable risks to a jury trial.

Wilson Sonsini Goodrich & Rosati, led by Keith E. Eggleton, represented SanDisk. Retired U.S. District Judge Layn R. Phillips for the Western District of Oklahoma served as a mediator.

There are, at most, three requests for exclusion to the settlement, according to court filings.

"Moreover, the absence of objections from sophisticated institutional investors who have the means and incentive to object to an inadequate settlement, if they deem it in their interests to do so, is a significant indicator of a proposed settlement's fairness," wrote Schwartz on behalf of the investors.