Plaintiff’s investigation has revealed that Leggett has secretly backdated millions of options to its top officers and directors for over a decade, reporting false financial statements and issuing false proxies to shareholders. Backdating stock options is now recognized as a deceptive practice companies throughout the securities markets have used to conceal grants of “in-the-money” options or options otherwise with more intrinsic value than disclosed, without reporting the corresponding requisite compensation expense.
The lawsuit says the practice dates back to 1995. The Pension Fund is demanding a jury trial.
Leggett & Platt officials addressed the lawsuit in a Sept. 8 SEC filing:
On September 4, 2008, a shareholder derivative complaint was filed by the New England Carpenters Pension Fund, which claims to own 3,000 shares of Leggett stock, in the United States District Court, Western District of Missouri. The action is purportedly brought on behalf of Leggett, naming it as a nominal defendant and naming as defendants certain current and former officers and directors of Leggett. The plaintiff alleges, among other things, that the individual defendants participated in the backdating of stock options, or allowed the backdating to occur; breached fiduciary duties; caused or allowed the Company to issue false and misleading financial statements and proxy statements; and sold Company stock while in possession of material non-public information.
The plaintiff seeks, among other things, unspecified monetary damages against the individual defendants, certain equitable and other relief relating to the profits from the alleged improper conduct, the rescission of certain unexercised options, punitive damages, the reimbursement of litigation costs, and the adoption of certain corporate governance proposals by the Company. It does not appear that the plaintiffs are seeking any monetary relief from the Company. Policies of directors and officers liability insurance are in force, and the Company is in the process of serving notice on these carriers of the lawsuit.
The complaint is based upon statistical analysis of Leggett stock prices and does not take into consideration important aspects of Leggett’s stock option plans. For example, multiple option grants in December are alleged to have been backdated, but were, in fact, granted in accordance with the Leggett Deferred Compensation Program which (i) provided for the option prices to be established based on the lowest closing price in the month of December, and (ii) was on file with the Securities and Exchange Commission disclosing this pricing mechanism before the date of the grants. Leggett expects that the outcome of the litigation will not have a material effect on Leggett’s financial condition or results of operation.