3Com Agrees to $259 million settlement on Shareholder Suit

S A N  F R A N C I S C O, Nov. 3 -- Computer network equipment maker 3Com Corp.said today it will pay $259 million to settle a shareholder suitalleging that the company concealed damaging information about amajor 1997 acquisition while its executives sold their stock toreap huge profits.

The class-action suit, covering all shareholders who boughtstock between April 23, 1997 and November 5, 1997, revolves aroundSanta Clara-based 3Com’s $7.3 billion purchase of U.S. Robotics.

In the two months before 3Com officially took control of U.S.Robotics in June 1997, the company’s stock more than doubled invalue. During this period, 3Com insiders sold a combined 4 millionshares of stock, realizing gains of about $200 million, the suitsaid.

The suit, filed in San Jose federal court, contends that 3Com’sstock wouldn’t have soared—and company executives wouldn’t haveprospered—had management been more forthcoming about U.S.Robotics’ financial condition.

In October 1997, 3Com revealed that U.S. Robotics had lost $160million during April and May—material information that the suitargues should have been disclosed before the acquisition closed.

Suit Alleges Investors Were Misled

After the revelation, 3Com’s stock lapsed into a slump that costshareholders covered in the complaint somewhere between $500million and $700 million, estimated New York attorney Robert N.Kaplan, who led the class action.

Related Stories

SCOTUS appears divided on Jan. 6 charges case

• Apr 16, 12:59 PM

Kansas women ID'd as 2 dead bodies in Oklahoma

• Apr 16, 7:46 PM

OJ Simpson dies at 76

• Apr 11, 6:32 PM

The suit also alleges that 3Com management misled investorsabout the market demand for U.S. Robotics’ computer modems.

“I believe 3Com now regrets that it didn’t disclose thisinformation about U.S. Robotics sooner,” Kaplan said.

In agreeing to make the cash settlement, 3Com didn’t acknowledgeany wrongdoing.

“While we aren’t exactly gleeful about having to pay thismoney, it feels great to get this off our books,” 3Com spokesmanBrian Johnson said.

The settlement will result in a charge against 3Com’s currentquarter ending Nov. 30, but won’t affect the company’s operatingresults. Johnson said the company still expects to meet WallStreet’s expectations for the quarter. Analysts polled by FirstCall/Thomson Financial expect 3Com to lose 8 cents per share in thecurrent quarter.