Judge OKs $13.9M settlement of Novell lawsuit

Nearly over: The decision comes five years after the firm's shareholders complainedabout securities fraud
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A federal judge has tentatively approved a $13.9 million settlement in a securities fraud suit filed more than five years ago against Novell Inc. by its shareholders.

U.S. District Judge Tena Campbell on Wednesday agreed to the proposed settlement and ordered that notices be mailed to Novell shareholders for their final approval.

Campbell scheduled a May 26 hearing to finalize the settlement, which would bring to an end a case first filed against the networking software and Linux distribution giant in December 1999.

Richard Burbidge, a Salt Lake City lawyer representing plaintiffs Domenico Pirraglia, Bella Pasternak and other shareholders, said he is happy to see the case finally winding toward a conclusion.

Novell attorney Jeff Hunt referred questions to Novell's chief legal counsel, Jim Lundberg, who did not immediately return calls.

However, in its stipulation to the settlement, Novell stressed that it had agreed to end the case in order to avoid further "protracted and expensive" litigation. The company also continues "to deny each and all of the claims and contentions alleged [along with] all charges of wrongdoing or liability," the company's attorneys wrote.

Burbidge and other attorneys representing shareholders had initially been rebuffed by Campbell in an April 2002 dismissal, but the 10th Circuit Court of Appeals partially restored the case and sent it back to district court for trial.

Reversing Campbell, the three-judge panel found shareholders should be allowed to take to trial various allegations regarding "various accounting shenanigans" that purportedly boosted the company's financial reports -- and subsequently caused investor losses when Novell stock slipped from $13 to $7 between Nov. 1, 1996 and April 22, 1997.

Specifically, the 10th Circuit ruled that shareholders were entitled to a trial on claims that former Novell President Joseph Marengi, then-board Chairman Robert Frankenberg and ex-Chief Financial Officer James Tolonen, among others, created a fictional "in transit" category and improperly recorded shipments to third-party retailers and resellers as revenue.

Meanwhile, Novell took a beating on the Nasdaq stock exchange on Wednesday, closing at $5.62 per share -- down 50 cents, or 8 percent, since its first-quarter earnings report was filed late Tuesday.

Including $484 million from a recent out-of-court settlement with Microsoft, Novell reported net profit of $392 million on revenue of $290 million, or 90 cents per diluted share, for the quarter ended Jan. 31.

Without the settlement, Novell's quarter ended with a profit of $10 million and 3 cents per share -- about $130,000 less than at the same time last year.

Novell and Microsoft announced the settlement last November, ending a long-running antitrust case involving alleged unfair competition in the mid-1990s with Novell's NetWare operating system.