Oracle Corp. directors, including Chief Executive Officer Larry Ellison, were sued by an investor for failing to mitigate damages when the company agreed to a $200 million whistle-blower settlement with the U.S. government.
Directors violated their fiduciary duties by forcing the government into extensive litigation even though they knew the allegations were “grounded in fact,” shareholder Jordan R. Weinrib said in a complaint filed today in Delaware Chancery Court in Wilmington.
“Rather than attempt to settle all claims at that time by the institution of appropriate corporate therapeutics and the paying of what would have been a small fine, the board insisted on digging in and litigating the matter extensively,” Weinrib said in the complaint.
The settlement, announced in October, resolved a lawsuit claiming Oracle induced the General Services Administration to buy $1.08 billion in software from 1998 to 2006 by falsely promising the same discounts offered to favored commercial customers. The payout was the largest ever obtained by the GSA under the False Claims Act, which lets citizens sue on behalf of the government and share in any recovery.
Former Oracle employee Paul Frascella filed the case in 2007. The Justice Department pursued the case after joining the whistle-blower lawsuit.
Weinrib blamed the company’s conduct on “gross mismanagement” by directors. The board failed to adopt safety measures including implementing a tracking system, internal controls and policies, and requiring mandatory personnel training, Weinrib said in the complaint.
“The misconduct at issue is one of the most serious forms of corporate misconduct as it represents a betrayal of a public trust,” Weinrib said in the complaint. “The acts in question were no mere technical or bookkeeping error.”
Weinrib is seeking unspecified damages on behalf of the company. Deborah Hellinger, an Oracle spokeswoman, declined to comment on the lawsuit.
Weinrib said in his complaint that he initially asked the company to investigate his claims in September 2010. Board members “surreptitiously” abandoned an investigation and instead focused on negotiating a settlement with shareholders who had filed similar complaints in federal court in San Francisco, he said.
A federal judge dismissed those lawsuits in November while giving the plaintiffs permission to amend them. Oracle’s board, which has entered into mediation with those plaintiffs, is attempting to “derail any inquiry into the wrongful acts,” Weinrib said.
The case is Weinrib v. Ellison, CA7350, Delaware Chancery Court (Wilmington)