SUNNYVALE, Calif.--SanDisk Corp. late Saturday (November 15, 2003) said it has settled with its Taiwanese law firm over a bizarre and costly episode of embezzled stock worth nearly $100 million.
Under the terms, SanDisk received from the Taiwanese law firm of Lee and Li a cash payment of $20 million, an additional $45 million secured by irrevocable standby letters of credit payable over four years, and a credit in the amount of $18.3 million to be applied against future legal services.
Last month, SanDisk announced that a senior associate at its Taiwan law firm, Lee and Li, had sold and misappropriated the proceeds of United Microelectronics Corp. shares owned by the flash memory-based storage card supplier (see October 15 story).
Eddie Liu, who worked at Lee and Li Attorneys-at-Law for 14 years, disappeared last month after allegedly cashing in about $100 million worth of UMC stock. The shares were owned by SanDisk and were held in trust by Lee and Li.
Liu is at large and the money is still missing, according to Taiwanese authorities. Investigators believe he may be in China, after laundering much of the money by buying huge numbers of diamonds, according to a report from the Associated Press. Lee and Li and SanDisk believe that insurance will likely not cover this loss.
Lee and Li originally informed SanDisk that about 121 million UMC shares were embezzled by Liu. Based on subsequent information provided by Lee and Li, SanDisk has now learned that approximately 127.8 million UMC shares owned by SanDisk and under the control of Lee and Li were sold in unauthorized transactions starting on August 6, 2003, and ending on September 15, 2003. The net proceeds from the unauthorized sales amounted to approximately $92 million.
SanDisk will record a non-operating charge of $18.3 million to its third quarter results, as the credit amount is unsecured.
Under the terms of the settlement, SanDisk received a cash payment from the Taiwanese law firm of Lee and Li for $20 million. Lee and Li will pay SanDisk an additional $45 million over four years in sixteen quarterly installments secured by irrevocable standby letters of credit. Further, Lee and Li has extended a credit in the amount of $18.3 million to SanDisk to be applied against future legal services provided by Lee and Li over a number of years.
In the event that SanDisk does not fully utilize the credit for future legal services in a given year, Lee and Li will annually remit one-third of the unused credit amount for that year to SanDisk and SanDisk will donate such amount to its corporate charitable fund.
The remaining two-thirds of the unused credit will be donated by Lee and Li in equal amounts to the Taiwan Red Cross and to a joint SanDisk/Lee and Li Lecture Program to promote integrated education in business, technology and law in Taiwan and China.
If any of the stolen assets are recovered, the net amount after recovery expenses will be split between SanDisk and Lee and Li, the majority of which will act to accelerate the recovery of SanDisk's book cost of the stolen shares.
If SanDisk receives the full $83.3 million, Lee and Li will be relieved of any remaining credit commitment. If there are any excess recovered funds, the net amount after recovery expenses will be distributed equally between SanDisk and Lee and Li, with SanDisk receiving up to a total maximum amount of $106.6 million, the fair market value of the shares at September 28, 2003.
"This embezzlement by a former employee of Lee and Li has been an unfortunate and painful event for both SanDisk and Lee and Li," said Eli Harari, president and CEO of SanDisk, in a statement. "I am very pleased that our two companies have arrived at a settlement."
In the same statement, Charles Van Orden, vice president and general counsel of SanDisk said, "We do not believe that the acts of a single rogue employee should alter the 40-year solid reputation of one of the region's premiere law firms. In the past several weeks, we have come to know several of the firm's fine partners. As we pursue extensive new opportunities in Taiwan and mainland China, we look forward to continuing our relationship with the firm."