Investors Stunned by Marvell Tech Directors
SAN FRANCISCO (CN) - With Marvell Technology Group facing a $1 billion patent infringement judgment, shareholders filed a class action derivative complaint against the company and seven officers and directors.
Founded in 1995 by defendant brothers Sehat and Pantas Sutardja, Marvell designs and develops semiconductors for major brands such as Hitachi, Toshiba and Samsung. Its stock is traded on the NASDAQ exchange under the ticker MRVL. Its headquarters is in the Silicon Valley, but it is a Bermuda company.
Lead plaintiff Lee Voss claims that the defendants unjustly enriched themselves through fraud, wasted corporate assets and damaged shareholders by jeopardizing their dividends. Voss seeks restitution for the class, shareholder representation on Marvell's board and strengthened oversight, audits and other procedures.
The 70-page complaint lists a litany of problems at Marvell, culminating in a 2012 judgment of $1.17 billion for patent infringement against Carnegie Mellon University. Marvell staff referred to their own chips as "coffee warmers" because of their ineffectiveness, and used Carnegie Mellon's technology without licensing it, according to the judgment.
The jury awarded Carnegie Mellon the huge sum because Marvell willfully infringed for nearly a decade, ignoring warnings from its own engineers, requests from Carnegie Mellon to negotiate a license for the patents, and even concerns and questions from a customer.
In all, Marvell sold 2.34 billion chips, at a profit margin of more than $2 per chip, using Carnegie Mellon's technology. The $1.17 billion judgment could be tripled because it was willful; the amount has yet to be determined.
According to the complaint, Sehat Sutardja, the company president, and his co-defendant wife Weili Dai, the vice president and corporate secretary, who drives a Ferrari F430, live lavishly and have a history of financial misdealing.
In 2001, Jasmine Networks, a competitor, claimed Marvell tried to steal its trade secrets and sued. Jasmine lost, and has appealed.
In 2006, the Securities Exchange Commission found that Marvell's executives and directors had backdated stock options, illegally pocketing about $760 million. As a result of the SEC investigation, stock in Marvell dropped by 53 percent, from $35.32 a share on Jan. 27, 2006, to $16.37 on May 21, 2007, a loss of $10 billion. A suit filed by shareholders was settled for $55 million.
After settling with the SEC, Dai paid a civil penalty of $500,000 and agreed not to serve as a director or officer in a public company for five years. A Marvel special committee recommended stripping CEO Sehat Sutardja of his chairman duties, but the board of directors didn't do it, according to the complaint.
Despite the SEC ban, Dai received more than $15 million in compensation from Marvell in 2007 and 2008, and more than $6 million in 2012, the complaint states. In 2013, after the ban had expired, Dai was given a $400,000 bonus and a $10,000 raise to her annual base salary of $510,000.
According to the lawsuit, the $3.5 billion Marvell may have to pay in damages is close to the company's current market value of $4.2 billion.
Furthermore, Marvell is required to make 50-cent royalty payments on all infringing chips its sells, which is estimated to reduce the company's profits by 25 percent.
Defendant board members Juergen Gromer, John Kassakian, Randhir Thakur and Arturo Krueger failed to prevent this and also are defendants, according to the complaint.
Voss seeks class certification and damages for breach of fiduciary duty, failure to maintain adequate controls, and unjust enrichment and breach of duty of honest services against the Sutardjas and Dai.
He is represented by Francis Bottini Jr. with Bottini & Bottini, of La Jolla.