Sept. 3 (Bloomberg) -- Oracle Corp. Chief Executive Officer Larry Ellison deliberately destroyed or withheld e-mails and failed to preserve tape recordings that should have been turned over to lawyers for shareholders suing him, a judge ruled.

U.S. District Judge Susan Illston in San Francisco said yesterday that the e-mails, as well as recordings of interviews for a book about Oracle founder Ellison called ``Softwar,'' were willfully withheld. Ellison and Oracle knew the material was potentially relevant to claims that they made false statements about the company's 2001 second-quarter financial results and problems with a software product, Illston said.

As a penalty, Illston said the jury in the case will be instructed to assume that Ellison knew about the problems. The judge also said she would take that assumption into account when deciding whether to rule in favor of investors on their claims for damages and Oracle's requests to throw the case out.

``The court believes it is appropriate to infer that the e-mails and the Softwar-related materials would demonstrate Ellison's knowledge of, among other things, problems with the Suite 11i, the effects of the economy on Oracle's business and problems with defendant's forecasting models,'' Illston said.

A trial in the case, brought by the Nursing Home Pension Fund, is scheduled to begin March 30.

Calls to Dorian Daley and James Maroulis, lawyers for Oracle and Ellison in the case, were referred to Oracle spokeswoman Deborah Hellinger, who didn't return calls seeking comment. Shawn Williams and Darren Robbins, both lawyers for the shareholders, also didn't return calls seeking comment.

Pay Package

Ellison, the fourth-richest man in America, has drawn criticism from some shareholders for a $72 million pay package that's 12 times bigger than the median pay of CEOs in the technology industry.

Ellison, who proposed the 38 percent raise and won approval from a committee of board members, is now the second best-paid chief executive officer of a U.S. public company. He received about $1.7 million less than Merrill Lynch & Co. CEO John Thain in 2007. Oracle's market value is three times Merrill's.

In the shareholder lawsuit, Ellison turned over 15 e-mails and another 1,650 of his e-mails from the files of other Oracle employees were turned over, according to Illston's ruling. Ellison and Oracle had a duty to preserve his e-mails after the litigation was filed in March 2001. Many missing e-mails were from after that date, Illston said.

Recordings Destroyed

The shareholders also sought 135 hours of recorded interviews from March 2001 to August 2002 with Ellison for the book ``Softwar: An Intimate Portrait of Larry Ellison and Oracle'' by Matthew Symonds. Symonds destroyed the tapes by directing a computer repair shop to dispose of the laptop where the recordings were stored.

Ellison turned over 200 pages of transcripts from 2002 and none from 2001, Illston said.

Oracle fell 36 cents, or 1.7 percent, to $21.19 in Nasdaq Stock Market trading. The stock has declined 6.2 percent this year.

The tools for discovering e-mail destruction have become more sophisticated in recent years, said Michael Overly, a partner in the Foley & Lardner law firm and author of the book ``Overly on Electronic Evidence.''

``The likelihood of getting caught is now extremely high,'' Overly said today in a phone interview.

Intentional Destruction

When someone intentionally destroys relevant evidence in a lawsuit, the judge may instruct jurors to assume that the evidence is unfavorable to the side that destroyed it, as in the Oracle case, Overly said. Judges may also decide the entire lawsuit against the evidence destroyer or impose a monetary fine.

In rare cases, people who destroy evidence have been prosecuted for perjury or other crimes, Overly said.

Illston said the destroyed or withheld information won't help shareholders demonstrate that all their claims should be tried in court. The judge denied investors' request for sanctions against Oracle and Ellison for allegedly withholding other evidence and for a pre-trial ruling that investors lost money because the company concealed information.

Illston ordered both parties to revise their requests for a ruling in their favor, taking into account the assumption that Ellison knew about the company's software problems. She also directed lawyers to explain what state of mind the shareholders must demonstrate to establish that Ellison is liable for violations of insider trading laws.

2001 Sales

Investors claim that Redwood City, California-based Oracle, the world's second-largest software company, improperly booked millions in sales in 2001. Ellison knew about the problems and sold $900 million of company stock before they were disclosed publicly, investors said.

Ellison settled a similar investor lawsuit in 2005 by agreeing to donate $100 million to charities and pay $22 million in attorney fees.

The case is Nursing Home Pension Fund v Oracle Corp., 01-988, U.S. District Court, Northern District of California (San Francisco).

To contact the reporter on this story: Karen Gullo in San Francisco at kgullo@bloomberg.net.

Last Updated: September 3, 2008 19:37 EDT