SanDisk, law firm settle over apparent share theft

TAIPEI – Memory-card maker SanDisk Corp. on Saturday announced it has reached a settlement with a Taiwanese law firm, Lee and Li Attorneys-at-Law, over the apparent theft of United Microelectronics Corp. (UMC) shares owned by SanDisk that were under the law firm’s control.

In October, Lee and Li advised SanDisk that around 121 million UMC shares had been sold in unauthorized sales, SanDisk said in a statement. That figure was later revised upward to 127.8 million shares with a cost basis of $83.3 million that had been sold in unauthorized transactions between Aug. 6 and Sept. 15 by an employee of the law firm, it said.

In the statement, SanDisk said Lee and Li’s reputation as one of Taiwan’s top law firms should not be tarnished by the acts of a “rogue employee” and said it would continue to work with the law firm.

The employee, who is alleged to have pocketed around $92 million from the sale, is now a fugitive and none of the funds from the unauthorized sale have been recovered so far, the statement said.

Under the terms of the settlement, SanDisk has received a cash payment of $20 million, the statement said. An additional $45 million will be paid to SanDisk in 16 quarterly installments over the next four years and SanDisk has been given a credit of $18.3 million to be applied against future legal services, it said.

SanDisk will record a non-operating charge of $18.3 million against its third-quarter earnings as the credit is not secured, it said.

The credit for legal services is to be applied over an unspecified number of years, the statement said. If the credit for a given year is not used up by SanDisk, Lee and Li will remit one-third of the unused credit to SanDisk, which will donate that money to its corporate charitable fund, it said. The remaining two-thirds will be split evenly between donations to the Taiwan Red Cross and a SanDisk-Lee and Li lecture program designed “to promote integrated education in business, technology and law in Taiwan and China,” it said.

Despite the settlement agreement, Lee and Li remains determined to track down the former employee allegedly responsible for the theft. The law firm has told SanDisk that it has opened investigations in several unspecified countries to track down the former employee and recover the stolen funds.

If some of the stolen funds are recovered, the recovered amount, less recovery expenses, will be split between SanDisk and Lee and Li, which will use most of its share to accelerate payments to SanDisk, the statement said. If SanDisk receives the full $83.3 million, Lee and Li will be relieved of any remaining credit commitments, it said.

If the amount recovered by SanDisk exceeds $83.3 million, the remaining funds, minus recovery expenses, will be split equally between Lee and Li and SanDisk, with SanDisk receiving a maximum of $106.6 million, the market value of the shares on Sept. 28, the statement said.