On December 13, 2021, the Honorable Freda L. Wolfson, U.S. District Court Judge for the District of New Jersey, granted final approval of a stockholder derivative settlement which resolves stockholder derivative litigation pending in the U.S. District Court for the District of New Jersey, the Court of Appeals for the Third Circuit, and Delaware Court of Chancery. Johnson Fistel serves as co-lead counsel for plaintiffs in the consolidated demand refused derivative action pending in the District of New Jersey.
The derivative actions were brought against certain current and former directors and officers of Synchronoss and allege that these individuals breached their fiduciary duties by, among other things, improperly recognizing revenue, engaging in related party transactions with friends and family of the Company, and issuing materially false and misleading statements about the Company’s business and related party transactions, including the terms of a perpetual licensing agreement with a related party, the performance of a cloud-computing content managing company and service provider acquired by Synchronoss, and the terms of the Company’s divestiture of its Activation Business. The derivative actions also allege that certain defendants sold their Synchronoss stock before the truth was finally revealed to the investing public.
The settlement approved by the Honorable Freda L. Wolfson resolves all the derivative actions by providing releases to the defendants named in the derivative actions in exchange for the Company’s agreement that Company funds will not be used to resolve the related securities class action lawsuit pending against the Company and certain of its executives, as well as robust corporate governance reforms tailored to address and prevent the recurrence of the alleged misconduct, including, among other things: (1) annual review of the Chairperson of the Board, and in the event the positions of CEO and Chairperson of the Board are not separated, the creation of the role of a Lead Independent Director, who shall be evaluated annually by the independent members of the Board; (2) mandatory approval by the Audit Committee of Board members’ service on the board of another public company and confirmation that remaining Board members do not object; (3) enhanced Board oversight of stock repurchases; (4) significant enhancements to the Company’s Disclosure Committee, including that it be comprised of senior members of pertinent departments and modifications to its Charter to include responsibilities geared toward assisting the Company with overseeing and evaluating its disclosure controls and procedures; (5) substantial improvements to the Audit Committee, including requiring the Audit Committee to meet at least six times annually and review with the Disclosure Committee the Company’s financial statements, earnings guidance, and earnings releases, including recommendations by internal and external auditors; (6) requiring the CCO to be a non-Section 16 officer responsible for various specified tasks in connection with the supervision of corporate governance policies and fostering a culture of compliance; (7) the requirement that the Audit Committee review all related party transactions to ensure they are conducted at arm’s-length, in connection with which the Audit Committee shall be afforded broad authority; and (8) reporting by Synchronoss’s CFO on the Company’s financial condition, including material increases in expenses and liabilities and material decreases in revenues and earnings, with the full Board.
The prosecution of the derivative actions was also a factor in the Company’s decision to review and revise its Insider Trading Policy with outside counsel. Indeed, in approving the settlement, Judge Wolfson stated that the reforms achieved through the settlement were “substantial and tailored” to the alleged harm and “strike the balance in curbing future issues that are the subject of [the] actions.”
Attorneys Frank Johnson, Michael Fistel, Jr., Mary Ellen Conner, and Adam Sunstrom led the prosecution of the litigation for Johnson Fistel and helped to achieve this outstanding result for plaintiffs on behalf of Synchronoss.
In re Synchronoss Technologies, Inc. Stockholder Derivative Demand Refused Litigation, Lead Case No. 3:20-cv-07150-FLW-LHG (D.N.J.).
In re Synchronoss Technologies, Inc. Derivative Litigation, No. 3:17-cv-07173-FLW-LHG (D.N.J.).
Daniel v. Waldis, No. 2019-0189-JTL (Del. Ch.).Edit