Kenneth Lowe Apr. 9, 2014, 10:54am

Three shareholders of a Naperville-based telecommunications company have filed a class action securities fraud lawsuit against the company's board, management and other major shareholders, claiming they lied and influenced the company's acquisition by another corporation in a way that benefited insiders and fleeced those with smaller stakes in the company.

Robert Engelhart, Jorge Rodriguez and the Judith Kane-Rodriguez 2012 Family Trust filed the suit late last month in Chicago's federal court against Tellabs Inc., a number of its directors and Marlin Equity Partners.

They allege Tellabs management and major shareholders raked in $110 million from an $891 million merger by ensuring Tellabs sold its shares to Marlin despite the availability of other options that would have more lucratively benefited more of its shareholders.

"In addition, from [Tellabs' acquisition by Marlin], Tellabs' officers and directors received millions of dollars in special payments - not being made to ordinary shareholders - for unvested stock options, performance units, and restricted shares, all of which became fully vested and exercisable upon the closing of the acquisition," the plaintiffs assert, noting that the "board members were conflicted and served their own financial interests rather than those of Tellabs' other shareholders"

They further claim that "management retained the services of a conflicted financial advisor as arbiter of the deal while it went forward, saying that Goldman Sachs & Co. "stood on both sides of the transaction."

"Funds managed by an affiliate of Goldman Sachs owned 11% of Marlin Equity III, L.P., which provided $13 million in equity financing to Marlin for the acquisition," the suit alleges. "The Board did nothing to oversee Goldman Sachs or attempt to protect shareholders from this significant conflict of interest."

Shareholders not in on the deal, according to the suit, received a "paltry" award for their shares, which the plaintiffs contend was drastically below the company's actual value.

The suit also claims that Dialectic Capital Management, another major shareholder in Tellabs, took advantage of the untimely 2012 death of Tellabs' CEO Rob Pullen and the subsequent retirement of Chairman Michael J. Birck to occupy three seats on the company's board of directors and steer the acquisition process.

In the process, the plaintiffs allege that Tellabs' board submitted documents to the Securities Exchange Commission and to shareholders advising them to go along with the acquisition while ommitting or misrepresenting information,.

Among facts withheld from or misstated to shareholders were details of the sales process, the conflicts of interest leading to the acquisition and data surrounding the financial valuation of the company during the process, the suit states.

"In pursuing and completing the unlawful plan to sell [Tellabs] for less than fair value and pursuant to an unfair process, defendants breached their fiduciary duties of loyalty, due care, independence, candor, good faith and fair dealing, and/or aided and abetted such breaches," the plaintiffs argue in their suit.

The proposed class would include any Tellabs stockholder whose stock price was converted to the acquisition price during the merger and all those who sold their stock as part of the merger.

The suit alleges violation of the Securities Exchange Act, breach of fiduciary duties and aiding and abetting of those breaches. It seeks an unspecified amount of damages.

Other defendants named in the suit include Blackhawk Holding Vehicle LLC, Blackhawk Merger Sub Inc., and Tellabs board members Vincent H. Tobkin, Bo Hedfors, Frank Ianna, Vincent D. Kelly, Michael E. Lavin, Stephanie Pace Marshall, Alex Mashinsky, Gregory J. Rossman, Dennis F. Strigl, Jan H. Suwinski and Mikel H. Williams.

The plaintiffs' suit was submitted by Chicago lawyers Norman Rifkind and Amelia S. Newton of Lasky & Rifkind Ltd., along with attorneys in California and New York.

Electronic court records show an initial status hearing in the matter has been set for May 20 before U.S. District Judge John Darrah.

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