GT Advanced Technologies shareholder suit settled for $27 million
And plaintiffs win a key ruling in second suit related to bankruptcy
Former executives from GT Advanced Technologies have agreed to settle a shareholder lawsuit for $27 million and lost a crucial ruling in a separate suit filed by the bankruptcy trustee that might result in an even bigger payout.
Both suits claim that the executives – including former CEO Thomas Gutierrez and ex-Chief Operating Officer Daniel W. Squiller – misled the company, investors and the public about the Merrimack-based company’s disastrous deal with Apple to manufacture sapphire for use in screens of the tech giant’s iPhone. The deal led GTAT, then a publicly traded company, to file bankruptcy in October 2014.
Most of the company’s assets have been purchased through bankruptcy by a private equity firm, and GTAT is still operating out of Merrimack. But the bankrupt estate still exists, and it is still paying off hundreds of creditors. At the end of January, the old GTAT shell still had $28 million.
Any money the trustees get from Gutierrez and Squiller – the only defendants named in that suit – would go to unsecured creditors, not shareholders.
The shareholders could only collect via class action suit filed against the Gutierrez, Squiller and the other executives – former chief finance officers Richard J. Gaynor and Raja Bal, Hoil Kim, the former general counsel, former board members and three underwriters, Canaccord Genuity Inc., Goldman, Sachs & Co., Morgan Stanley & Co. and Apple itself.
The underwriters settled with the plaintiffs last year for $9.5 million. The rest of the defendants disclosed a proposed $27 million settlement in federal court in February, which, after litigation costs and legal fees, would go to all those who purchased or traded GTAT stock between Nov.. 5, 2013 and Oct. 6, 2014.
All the defendants deny and continue to deny that they committed any fraud.
The defendants’ money will come from a $60 million indemnity insurance policy taken out before the bankruptcy that covered defendants’ liability against securities fraud litigation. The court tentatively approved the deal in February, but it won’t be paid out until any parties have a chance to object. A settlement conference is scheduled for June.
Apple, which has a lot deeper pockets, has not settled. Shareholders contend that the company’s contract to produce the sapphire with GTAT was so “onerously and massively one-sided” that it “effectively controlled” the New Hampshire company and was at least partially responsible for the bankruptcy.
Apple’s attempt to dismiss the allegation was only partially tossed out by a federal judge, even though Judge Joseph Laplante admitted that case was “thin.”
The trustee’s case against the executives seems to be stronger, at least according to Laplante’s Tuesday ruling against dismissal of the suit against Gutierrez and Squiller.
That lawsuit echoes many of the same charges as the class action, but in the trustee’s suit, board members, who are defendants in the shareholders’ suit, are considered having been duped by the executives,
Both lawsuits describe the same situation. GTAT, which started out manufacturing equipment to make material for solar panels and cellphones, agreed to produce sapphire to toughen Apple’s iPhone screen, in a deal financed by Apple. The suits claim officials did this even though they were warned by their own employees that GTAT was not even close to developing the technology to do so.
Meanwhile, the officials presented an optimistic front to investors, saying that the deal was on track when it was coming off the rails, both lawsuits claim.
The defendants “pursued what could generously be called a risky contractual arrangement with Apple,” the judge wrote in his opinion. “When Apple renegotiated the terms of that arrangement, the proposed venture went from risky to at best foolhardy and at worst doomed to failure. Armed with that knowledge, the defendants allegedly deliberately, or in a grossly negligent manner, withheld critical information from the board of directors which would have shown that the deal was not technologically feasible.”
The complaint was “more than sufficient” to allege that the “defendants acted with a purpose other than advancing GTAT’s best interest” he said, alluding to executives cashing in stock options before the bankruptcy filing.
If the allegations were true “the defendants knew, based on their deliberate manipulation of the cost models, that GTAT would be unable to comply with the requirements of the Apple agreement shortly after the deal was consummated.”
But the trustee still has to prove the allegations in court, and that could take years.
“We are very pleased with the Court’s thorough, well-reasoned decision,” said Eric D. Madden, the trustee’s Dallas-based attorney. “It represents a significant step toward holding those accountable for the financial collapse of GT Advanced Technologies, which left scores of unpaid creditors in New Hampshire and throughout the country.”