The following is not meant to be legal advice.
In In re CNET Networks, Inc. Shareholder Derivative Litigation, No. -cv-03817 (N.D. Cal. April 11, 2007), Judge William Alsup dismissed a shareholder derivative complaint against officers and directors of CNET Networks, Inc. (CNET) based on options backdating allegations.
In re CNET Networks, Inc. Shareholder Derivative Litigation, the court held that plaintiffs were unable to show that a majority of CNET's Board was incapable of exercising independent business judgment. Plaintiffs alleged that grants to directors and officers had been backdated, which rendered CNET's Board incapable of disinterestedly weighing a shareholder demand to pursue litigation against the defendants. The existence of backdated grants was not sufficient to render the directors incapable of determining whether litigation was in the company's interest. Plaintiffs did not have standing to sue on the company's behalf.
The court held that without plaintiffs establishing that their allegations were based on analytical methods, an inference of fraud was difficult to support. The court would not infer that fraud occurred because once CNET's option problems were discovered, the Board appointed a special committee to investigate and apply remedial measures.
There are non-fraudulent explanations as to how a company could use the wrong measurement date for an option grant. That an option had an incorrect measurement date would be insufficient to demonstrate wrongdoing.
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