August 20, 2009 / 10:13 PM / 10 years ago

UPDATE 2-Ex-Cyberonics CEO loses SunTrust defamation case

* Ex-CEO Cummins said analysts defamed him over options

* Judge says analysts’ statements were protected (Recasts headline)

By Jonathan Stempel

NEW YORK, Aug 20 (Reuters) - A Manhattan federal judge on Thursday dismissed a defamation lawsuit by a former Cyberonics Inc CYBX.O chief executive over analysts’ comments about a stock option grant he received a day before the medical device maker’s shares soared 78 percent.

Robert “Skip” Cummins had accused SunTrust Banks Inc’s (STI.N) capital markets unit and two analysts, Jonathan Block and Amit Hazan, of defaming him by likening a June 15, 2004 grant of 150,000 stock options to illegal backdating.

“The core facts about the June 15 options were indisputably true and the authors’ conclusions were protected statements of opinion based on disclosed facts,” U.S. District Judge John Koeltl wrote in an 81-page opinion.

The grant was awarded the same day a U.S. Food and Drug Administration advisory panel urged approval of Houston-based Cyberonics’ implantable device to treat depression. Cyberonics shares rose $15.23 to $34.81 the next day.

Cummins and Cyberonics’ chief financial officer resigned in November 2006 when the company said it would restate six years of results after discovering accounting errors related to option grants.

According to the complaint, the alleged improper statements appeared in two June 2006 research reports and in separately published comments.

Koeltl reviewed 37 separate alleged wrongful statements and concluded that Cummins was not defamed, and that he failed to show the defendants acted negligently.

He reached his ruling despite concluding that Cummins needed to show that the defendants acted only negligently rather than with actual malice, a higher standard of proof.

“When this lawsuit was originally filed, we said Amit Hazan and Jonathan Block were two of SunTrust’s most reliable analysts,” said Judson Graves, a partner at Alston & Bird LLP in Atlanta representing the defendants, in an interview. “They have been totally vindicated, as they should have been.”

Cyberonics and a lawyer for Cummins did not immediately return calls for comment. Graves said Block still works for Atlanta-based SunTrust. Hazan later moved to Oppenheimer & Co.

Stock options let holders buy shares in the future at fixed prices. Backdating involves the retroactive grant of options on dates when the stock price was low, which can make the awards more valuable. Concealing the practice can inflate earnings.

More than 200 companies have been subjected to internal or regulatory probes of backdating since the practice first became widely understood earlier this decade.

The case is Cummins v. SunTrust Capital Markets Inc et al, U.S. District Court, Southern District of New York (Manhattan), No. 07-4633. (Reporting by Jonathan Stempel; Editing by Tim Dobbyn)

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