MiniScribe Corporation (Litigation)

MiniScribe, a $600 million company, was one of the world's largest disk drive manufacturers. It faced a daunting array of operating and financial pressures, in the face of which the Company committed massive fraud. In fact, the Company shipped bricks in lieu of disk drives, and recorded them as revenue.

In the aftermath of MiniScribe's collapse, investors lost hundreds of millions of dollars, and sued numerous parties, including Coopers & Lybrand, the company's accountants. Because of the egregious nature of the fraud, a Texas jury trial assessed massive punitive damages to plaintiffs representing only a small fraction of the damaged parties.

Following this verdict, Gordian Group was engaged by Arnold & Porter (Coopers & Lybrand's attorneys) to assist in the multi-district defense. We developed a thesis that (i) MiniScribe's operating problems would have been fatal even if Coopers & Lybrand had uncovered the fraud in prior periods and (ii) accordingly, any damages pertaining to Coopers & Lybrand should be de minimis.

Using it's own technology expertise, Gordian Group worked in conjunction with both counsel and a technology consultant to assess the viability of each product line as of the time of the substantive fraud. Gordian Group then constructed prospective financial models of MiniScribe's performance based upon assumptions regarding (i) sales, (ii) profitability, (iii) shut-down costs for various products and (iv) financing capability. Gordian Group concluded that MiniScribe would have been rendered insolvent - with or without the fraud - and the plaintiffs would have been virtually wiped out anyway.

Gordian Group's work was instrumental in Coopers & Lybrand's successful efforts to settle the litigation.