Stock options backdating cases never seem to die. But a federal appeals court may have spelled the end for former McAfee general counsel Kent Roberts today by tossing out his suit accusin his former employer of malicious prosecution and defamation.
The 9th U.S. Circuit Court of Appeals held that Roberts entire case against McAfee should be chucked, perhaps spelling the end to a saga that had Roberts at the center of one of the many backdating scandals that erupted in the mid-2000s. McAfee is the computer software security firm.
Backdating refers to the practice of dating a stock option at some earlier date when the company’s stock is trading at a lower price than the date of the options grant. The effect is to create an instant profit in the option if the option to buy stock is exercised and then the shares are sold.
The backdating is not illegal, it is the failure to report the practice to investors and count it as a company expense that brings in the cops.
Roberts was acquitted of criminal charges by a federal jury in October 2008 and the Securities and Exchange Commission drops its civil charges six months later. Then Roberts sued his former employer claiming McAfee maliciously prosecuted and defamed him to deflect attention from the alleged widespread backdating within the company.
Judge Wallace Tashima wrote that to bring a malicious prosecution action a defendant must show it was brought without probable cause. Roberts could not meet that burden, according to Tashima.
Roberts had accused McAfee of falsifying and withholding evidence to make his culpability look greater than it really was. But even if they did, “lying about the facts is not enough to destroy probable cause,” according to Tashima.
“While Roberts was eventually successful in beating back the criminal and civil enforcement actions against him, the ultimate failure of a lawsuit does not mean there was no probable cause to bring it,” said Tashima.
Tashima, joined by Judges Betty Fletcher and Stephen Reinhardt, ordered dismissal of both his lawsuits, for defamation and malicious prosecution.
Perhaps this is an instance that begs the line, ‘quit while you’re ahead.’ Roberts will now get McAfee’s bill for the cost of the appeal.
Case: Roberts v. McAfee, Inc. No. 10-15561, 10-15670