In re PLX Technology Stockholders Litigation

Eric Singer helped manage Potomac Capital Partners (Potomac) (defendant) and was Potomac’s agent. Potomac purchased a large block of shares in PLX Technology Inc. (PLX) for the purpose of selling PLX quickly for a profit. Singer became a member of PLX’s board of directors. Singer learned that Avago was willing to buy PLX for $6.50 per share. Without giving this information to the rest of PLX’s board, Singer essentially pretended to negotiate the sale of PLX to Avago for $6.50. However, PLX was doing well and was expected to continue to increase in value. Under these existing projections, the discounted-cash-flow valuation of PLX was $6.90 to $9.86 per share. Singer convinced the other directors to create a different set of projections that made the negotiated $6.50 price seem more reasonable. The board then made misrepresentations to the public and PLX’s stockholders about the reason for those new projections. However, PLX’s board also conducted a presigning canvas and a postsigning market check, which both provided information to the board about what a different potential bidder might pay. The sale to Avago closed at $6.50 per share. A group of PLX’s stockholders (plaintiffs) sued Potomac and others, alleging that (1) PLX’s directors had breached their fiduciary duties to the stockholders and (2) Potomac, through its agent, Singer, had aided and abetted these breaches. The stockholders claimed that PLX’s fair value was $9.86 per share.