Santa Clara Superior Court Rules In Favor Of PrediWave on All Counts Against Simpson, Thacher & Barlett, LLP

Law Firm Is Accused of Malpractice, Failure to Disclose $100 Million Fraud by Former PrediWave CEO in Destructive Cover-Up

SANTA CLARA, Calif.--()--Judge Mary Jo Levinger of the Santa Clara Superior Court has rejected a request by Simpson, Thacher & Bartlett, LLP to dismiss claims for malpractice, breach of fiduciary duty and unfair competition asserted against the law firm by its former client, PrediWave Corporation. In March, the California technology company filed an amended complaint alleging that Simpson Thacher lawyers concealed a massive fraud from PrediWave’s board of directors, allowing the corporation’s former CEO to abscond with tens of millions of dollars in ill-gotten funds.

Simpson Thacher’s demurrer, which was overruled in a court order released today, was the latest in a series of failed attempts by the law firm to prevent PrediWave's claims from proceeding forward to trial.

“Simpson Thacher not only violated their ethical obligations as PrediWave’s attorneys, but undermined PrediWave competitively as a company,” said Steve Owens, an attorney for PrediWave. “We are extremely pleased that Judge Levinger has recognized the legal validity of PrediWave’s allegations against Simpson Thacher. The case will now proceed to a trial in which my client is prepared to present overwhelming evidence of gross professional misconduct by Simpson Thacher and two partners of that firm.”

PrediWave’s complaint outlines how Simpson Thacher hired investigators who uncovered a massive fraud scheme being perpetrated by former PrediWave chief executive officer, Jianping “Tony” Qu. But rather than disclose their findings to the company’s board of directors, Simpson Thacher attorneys chose to conceal that information and even obstructed the investigation into Qu’s actions by certain members of PrediWave’s board of directors.

Mr. Qu fled the United States in 2006 after transferring more than $40 million in corporate funds to a bank account in Japan. As a result of Qu’s fraudulent conduct, PrediWave was ruined by a $2.8 billion judgment against it. Mr. Qu remains an international fugitive to this day.

The allegations contained in the amended complaint filed include:

Simpson Thacher attorneys became aware by December 1, 2004 that Mr. Qu was directing PrediWave’s purchase of tens of millions of dollars of memory chips from a shell corporation whose profits were pocketed by Mr. Qu.

Simpson Thacher uncovered evidence showing that delivery records and price quotes from a non-existent Chinese company were falsified, while the memory chips themselves were purchased from a tech firm operating only a few miles from PrediWave’s Fremont headquarters.

Mr. Qu was paid a $25 million bonus in January 2005 while Simpson Thacher sat on the evidence it had gathered regarding his activities.

Attorneys for Simpson Thacher filed a lawsuit in May 2004 preventing two PrediWave directors from reviewing company documents and pursuing an investigation that would have revealed Mr. Qu’s misconduct.

In 2005, Simpson Thacher chose to hire a private investigations firm, not for the purpose of exposing Mr. Qu’s actions, but to determine the probability of the fraud going public. Simpson Thacher never disclosed the results of that investigation to PrediWave’s board of directors.

While serving as PrediWave’s counsel for only little over a year, Simpson Thacher billed over $16 million in legal fees. At the same time, Mr. Qu was receiving approximately $25 million in annual bonuses from a company that had recorded no sales and no profits.

PrediWave is seeking over $100 million in restitution and disgorgement of all legal fees paid by PrediWave to Simpson Thacher.

Contacts

Sam Singer, 415-227-9700
singer@singersf.com

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Contacts

Sam Singer, 415-227-9700
singer@singersf.com