SAN JOSE (CN) - Polycom's board of directors handed its former CEO "undeserved severance" of $1.5 million after he was caught falsifying expense reports and the company lost hundreds of millions of dollars in the fallout, a shareholder claims in a derivative lawsuit.
James Clem sued former CEO Andrew Miller and eight Polycom directors in Santa Clara County Court, alleging breach of fiduciary duty, waste of corporate assets and unjust enrichment. Polycom is a tech company specializing in telephonic video and voice conferencing.
Clem claims Miller was forced to resign for "irregularities" in his expense reports.
"Miller submitted false expense reports to the company," the lawsuit states. "On July 19, 2013, defendant Miller abruptly resigned from his positions at Polycom after an investigation by the Audit Committee of the Board uncovered significant 'irregularities' in his submission of expense reimbursement reports.
"Despite being forced to resign for these 'irregularities,' the board still provided defendant Miller with an extremely lucrative 'golden parachute' pursuant to the separation agreement and release ('separation agreement') worth at least $1,531,500."
According to the lawsuit, Miller walked away with $500,000 in cash, $969,000 to $1,211,250 worth of restricted stock and "performance share awards," nearly an extra month's salary, he remained eligible for a 6-month bonus, he got to keep his company-issued computer, and "notwithstanding the fact that that defendant Miller had just defrauded the company with his submission of false expense reports, the separation agreement even provided that the company would pay 'all of [his] outstanding business expenses.'"
Polycom also paid Miller's attorney fees for negotiating the terms of his resignation.
Clem claims that Miller's conduct damaged Polycom's "reputation and its relationships with its customer base."
"Shortly after the revelation of defendant Miller's misconduct and resignation, Polycom announced that its largest client, Cisco Systems ('Cisco'), ended its customer relationship with the company," the complaint states.
Clem claims that Polycom failed to disclose Miller's misconduct in its annual proxy report to the SEC, creating "a false perception" about Miller's fitness to lead the company, and because shareholders were kept in the dark, they re-elected Miller to the Polycom board.
When the public learned what Miller had done, its market capitalization sank by $290 million, the lawsuit states.
"This was after the board caused the company to repurchase over $128 million of its own artificially inflated stock. As a direct result of the individual defendants' (as defined herein) wrongdoing, the company is now the subject of a securities class action lawsuit filed in the United States District Court for the Northern District of California on behalf of investors who purchased Polycom shares. The securities class action lawsuit poses the risk of hundreds of millions of dollars in damages to the company," the complaint states.
Clem demands rescission of the separation agreement, restitution, an injunction ordering Polycom to reform its governance, and unspecified damages.
Also named as defendants are Polycom executives and directors Eric Brown, Sayed Darwish, Kevin Parker, Betsy Atkins, John Kelley, William Owens, D. Scott Mercer and David DeWalt.
Clem is represented by Brian Robbins with Robbins Arroyo of San Diego.
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