Where does one even begin when preparing to litigate a massive securities fraud case with millions of documents to analyze, hundreds of witnesses to interview and scores of depositions to take?
All securities class actions are complicated. But the case against the imaging giant Xerox Corp. posed some particularly daunting logistical and legal challenges.
Eight years after the first court papers were filed, Xerox and its former auditor agreed this year to pay $750 million to settle claims that they violated federal securities laws. If the settlement receives final court approval this fall, the recovery will rank among the largest of all time.
Berman DeValerio represented the Louisiana State Employees’ Retirement System, the only institutional co-lead plaintiff in the case.
The lawsuit accused Xerox of a host of top-down accounting manipulations orchestrated to inflate revenues and meet Wall Street expectations. Among the allegations: improper revenue recognition in the company’s leasing division; overstated values of future payments from leases originating in developing countries; and failure to write off mounting bad debts and improperly classified transactions in its Mexico operations.
The allegedly fraudulent activities were occurring at multiple levels at Xerox, with numerous actors, issues and accounting principles.
“Xerox is a huge company with billions of dollars in annual sales and tens of thousands of transactions in more than 50 countries – all with different currencies, policies and procedures,” said Glen DeValerio, managing partner in Berman DeValerio’s Boston office. “There were so many ways in which plaintiffs believed the defendants were manipulating the books. Some were obvious, some not. Some were large, some small. But even the small ones can amount to significant money when they occur many times over and around the world.”
The Berman DeValerio team recognized early on the sheer enormity of the case and developed processes with an eye toward maximum efficiency. Work was split among three co-lead law firms. At the height of the litigation, it involved more than 100 permanent and contract lawyers. Each law firm took responsibility for particular elements of the case.
For starters, the lawyers brought in Berman DeValerio’s in-house forensic accountants to explain to attorneys how the frauds were likely executed. “We had a lot of issues to sort through, with a steep learning curve. So having training up-front on accounting manipulations allowed us all to get up to speed very quickly,” DeValerio said.
The legal team obtained documents in the case electronically, allowing the attorneys to review and code everything online. The electronic versions streamlined a laborious process that not long ago relied solely upon reams and reams of paper.
There were literally millions of documents to examine, from spreadsheets to sales charts to emails among Xerox employees. “But it’s not as if any of these emails said: ‘Let me detail how we were manipulating the books,'” said Bryan Wood, a senior Berman DeValerio associate who worked extensively on the case.
The defense team also provided hard copies of documents – boxes and boxes of unorganized papers. Some, but not all, mirrored the electronic versions, requiring the plaintiffs’ lawyers to sift through the printed papers to ensure that nothing was missed.
While one team of attorneys analyzed the electronic documents in-depth, a second team of attorneys culled through the hard copies.
After completing the initial document review, the attorneys drafted an annotated internal memo that detailed every fraud allegation in the case.
Attorneys used this guide as an encyclopedic reference while piecing together the case against Xerox, saving time and providing important context as they drafted increasingly complicated pleadings.
Armed with Berman DeValerio’s annotated fraud memo, these lawyers could home in on key documents and concepts without returning time and again to the originals – many consisting of numbers with no accompanying explanation.
The review teams – comprised largely of contract attorneys, supervised by lead counsel – grew smaller as the documents were winnowed, keeping a lid on costs.
Finally, after numerous discussions among the plaintiffs, Xerox and KPMG, its former auditor, the case was resolved after a two-day mediation. The discussions were, at times, very difficult. But the firm’s mastery of the basic facts of this extremely complicated case greatly assisted in the eventual resolution.
“Xerox shareholders can feel good about the significant financial recovery, especially given the length and difficulty of this case,” DeValerio said. “Moreover, we are now able to take new efficiencies we created with this case and build them into other prosecutions. We don’t have to reinvent the wheel.”
*In August 2017, our firm name changed to Berman Tabacco. Case references and content published before that date may refer to the firm under our prior name, Berman DeValerio.