Bloomberg has reported that Computer Sciences Corp. (CSC) has agreed to pay $97.5 million to settle the class-action lawsuit over alleged false statements about accounting and the company’s performance on a multibillion-dollar contract. A proposed settlement was filed in US federal court and is subject to approval by a judge.
Investors alleged that Computer Sciences officials “made false or misleading statements or omitted to disclose material facts” about the effectiveness of internal controls over financial reporting and about the company’s performance on a $5.4 billion electronic patient records contract with the U.K.’s National Health Service (NHS) , according to a memo filed in support of the settlement.
The “false statement and omissions caused the price of CSC common stock to be artificially inflated” and subsequently declined “when truthful corrective information was disclosed,” lawyers for the plaintiffs said in the memo.
Fuller details are given on:
This is good news for CSC as it removes a major uncertainty which could have deterred a potential investor or acquirer from buying into CSC.
However, US$97 million is a large sum for one group of CSC shareholders to have to pay to another group of shareholders who brought the lawsuit. Additionally, former CEO Michael W Laphen and former CFO Michael Mancuso were also named defendants in the lawsuit. Is there any chance CSC will try to recover some of the US$97 million from these two? We do not think so, as CSC will not have admitted any wrongdoing and this will preclude any recovery. So we can just add the whole US$97 million to the already significant cost of Mr Laphen’s period of mismanagement of CSC.
But even if CSC cannot recover any part of the US$97 million settlement, previous CSC management, specifically Messrs Laphen, Mancuso and former Europe President Guy Hains should be required to pay back the large bonuses, share options etc awarded to them for a “performance” which we now know was just smoke. We now know the company was not in fact profitable even though it was reported as being profitable and huge compensation was paid out on that basis.
Specifically, Guy Hains received $2.2million in 2012 yet he personally led the botched NHS IT project which led to the lawsuit. As President Europe he also had oversight responsibility for the Nordics during the time of their inappropriate accounting practices. Mike Laphen received $20.9million in 2012 just when the company results collapsed.
How anyone can get such large packages for leading the company into the abyss is beyond explanation. That they are not required to reimburse any part even when it is proved that they should never earned those amounts at all is equally beyond explanation.