We have all seen the various league tables showing which plaintiffs’ firms have had the highest average securities class action settlements. But do these firms wind up at the top of the tables because they produce better outcomes for the plaintiff class, or do they produce these results simply because they are better at winning the race to become lead counsel in the better cases? As three academics put it in their recent paper, “do the plaintiffs’ lawyers matter”?

In their paper, New York Law Professor Stephen J. Choi, University of Richmond Law Professor Jessica M. Erickson, and University of Michigan Law Professor Adam C. Pritchard survey securities class action lawsuit settlements in order to determine whether the “top tier” plaintiffs’ firms actually produce better outcomes for the plaintiff class. Interestingly, the authors conclude that while the top firms produce better outcomes in a narrow subset of cases, in most other cases they do not. The authors suggest these observations have important implications for both claimants and courts. The authors’ paper can be found here. The authors’ March 12, 2024, column in the CLS Blue Sky Blog about their paper can be found here.  

Continue Reading Does the Plaintiff Law Firm Matter in Securities Suit Outcomes?

It is an idea that suddenly is all the rage – that companies should shake the Delaware dust off their feet and reincorporate elsewhere. Elon Musk has famously said, in the wake of the Delaware Chancery Court’s decision voiding his $55.8 billion pay package, that he will seek to reincorporate Tesla in Texas. (SpaceX, also a Musk company, has in fact already reincorporated in Texas.) The former Attorney General William Barr and another GOP official published a Wall Street Journal column arguing that Delaware’s courts are driving corporations away (as discussed here), and suggesting that companies increasingly will find it more attractive to be incorporated in Nevada or another state. Some companies have indeed left Delaware and reincorporated elsewhere – including not just SpaceX, but also TripAdvisor, for example. Why would a company change its state of incorporation from Delaware to another state? And with reference to the focus of  this blog, does a company’s redomestication from Delaware to another state have implications for the potential liability exposures of the company’s directors and officers?

Let’s start with the most important question. What are the reasons why a company might want to incorporate in another state rather than Delaware? In an interesting March 11, 2024, post on the California Corporate & Securities Law blog entitled “Reason to Quit Delaware Are Getting’ Bigger Each Day”, (here) Keith Paul Bishop of the Allen Matkins law firm examines this question. Specifically, Bishop summarizes the specific reasons in the proxy statement given by the consumer products company Laird Superfood, in connection with its move its state of incorporation from Delaware to Nevada.

For starters, as the company explains in its proxy statement, in 2023, the company paid about $200,000 in Delaware Franchise Taxes; it expects to pay only $700 in annual fees to Nevada.

Second, the company specifically identified “potentially greater protection from unmeritorious litigation for directors and officers of the Company” as one of the important reasons for its redomestication. As Bishop notes in his blog post, “Nevada does not set the liability bar high.”

This is what the company said in its proxy statement, in reference to  Nevada Revised Statute 78.138(3), with respect to Nevada law concerning the liabilities of directors and officers:

Nevada law permits a broader exclusion of individual liability of both officers and directors to a company and its stockholders, providing for an exclusion of any damages as a result of any act or failure to act in his or her capacity as a director or officer unless the presumption that the director or officer acted in good faith, on an informed basis and with a view to the interests of the company, has been rebutted, and it is proven that the director’s or officer’s act or failure to act constituted a breach of his or her fiduciary duties as a director or officer, and such breach involved intentional misconduct, fraud or a knowing violation of law.

Nevada law, the company said in it proxy statement, “provides greater protection to our directors, officers, and the Company than Delaware law.” The company goes on to say, with respect to the risk of litigation in Delaware that “The increasing frequency of claims and litigation directed towards directors and officers has greatly expanded the risks facing directors and officers of public companies in exercising their duties. The amount of time and money required to respond to these claims and to defend these types of litigation matters can be substantia.”

Nevada law, as the proxy statement notes and as Bishop emphasizes in his blog post, “takes a statute-focused approach that does not depend upon judicial interpretation, supplementation and revision.” Bishop gripes that “you can read Delaware General Corporation Law cover to cover and still know very little about Delaware corporate law.” Most of the important Delaware corporate doctrines are the by-product of case law. While Delaware’s judge made law does “evidence a high degree of legal sophistication,” Bishop notes, it also “imposes significant costs on corporations due to the inherent uncertainty,” and “encourages litigants to test new theories of liability.”

Nevada statutorily rejects Delaware and other state precedent; its statutes provide: “The plain meaning of the laws enacted in the Legislature in this title, including without limitation, the fiduciary duties and liability of the directors and officers of a domestic corporation … must not be supplanted or modified by laws or judicial decisions from any other jurisdiction” and adds further that “judicial decisions or practices of another jurisdiction does not constitute or indicate a breach of fiduciary duty.”

I don’t know for sure that the liability exposures of corporate directors and officers under Nevada law are categorically lower than in Delaware; as far as I know, there is not enough of a track record of D&O liability actions in Nevada courts, by contrast to the many decades of experience under Delaware law.

However, the idea that under the laws of Nevada, the directors and officers face a reduced liability risk exposure than they would under the laws of Delaware was one of the important reasons for Laird Superfood in its decision to redomesticate in Nevada. The company’s move to change its state of incorporation show that this company at least believes the liability exposure is less in Nevada.

Over the last several weeks, I have received several inquiries asking whether D&O insurers price differently for Delaware corporations rather than they do for companies incorporated in other states. Although I have not been asked this question, it might also be asked whether Nevada companies should be priced at a discount relative to Delaware companies.

It is my perception that D&O insurers are not making price adjustments based on a company’s state of incorporation. Moreover, in a competitive marketplace, characterized by ample insurance capacity and falling prices, insurers have little power to make subtle pricing adjustment on bases other than the broadest risk selection factors – e.g., industry, company size, and financial condition. So – when asked, I have told inquirers that I don’t think insurers are adding a Delaware pricing load, or for that matter, applying a Nevada discount.

But just because insurers may not now be adjusting pricing based on a company’s state of incorporation, that does not mean that it isn’t something they should be doing. If you review the logic Laird Superfood followed to warrant the company’s redomestication in Nevada, you certainly do have to ask yourself whether D&O insurers maybe should be offering Nevada companies a discount.

Of course, it would be hard to know how much of a discount to apply, especially in light of the relatively light track record around issues of liability for directors and officers of Nevada companies. And, as I noted, in a marketplace already characterized by falling prices, insurers may feel they don’t have room for even further discounts. That said, it is at least something worth thinking about.

There is one other reason why D&O insurers might want to weight their company portfolio away from Delaware companies and in favor of companies incorporated in other states, and that is that the insurers with a portfolio weighted toward companies from other states would be less likely to have to litigate coverage issues in Delaware’s courts. Delaware’s courts, and its Superior Court in particular, have a well-earned reputation of a bias in favor of policyholders and against insurers. To be sure, the insurers could avoid Delaware’s courts by adding a forum selection clause (and, belt and suspenders, a choice of law clause), but for whatever reason, the marketplace seems resistant to making these kinds of policy changes. Just avoiding Delaware corporations altogether could accomplish the same thing without having to modify the policy form.

So – here’s my question for the audience: Should D&O insurers be taking state of incorporation into account as part of the risk selection and pricing process? A great topic for further discussion. Maybe a topic for a panel at the next PLUS D&O Symposium.

On March 13, 2024, the European Parliament approved the adoption of the EU Artificial Intelligence Act, legislation that the Wall Street Journal, in a front-page article, called the “World’s First Comprehensive AI Law.” The sweeping law, the effectiveness of which will be staged-in over the next several years, will affect all companies deploying or using Artificial Intelligence (AI) in the EU. As discussed below, the passage of the Act, which has been several years in the making, could have significant implications for the adopting and deployment of AI worldwide, and could also have significant liability risk implications as well. A copy of the EU’s March 13, 2024, press release about the Act’s adoption can be found here. The Act’s text as adopted can be found here.

Continue Reading EU Adopts Sweeping AI Law: What Does it Mean?

I have noted in prior posts on this site the phenomenon of ESG backlash, which has not only taken the form of legislative and other overtly pollical action, but has also taken the form of litigation as well. Though the ESG backlash lawsuits generally have not fared well in the courts, one of these suits recently survived a motion to dismiss.

In a February 21, 2024, ruling, the Northern District of Texas denied the motion to dismiss in a lawsuit filed by an American Airlines pilot alleging that the airline and its employee benefits committee violated their fiduciary duties under ERISA to the company’s 401(k) plan participants in connection with selection and retention of funds whose managers allegedly pursue non-economic ESG objectives rather than maximizing plan participants’ financial benefits. As discussed below, the ruling underscores just how fraught the ESG-related litigation picture has become. A copy of the court’s ruling can be found here.

Continue Reading ESG Backlash ERISA Lawsuit Survives Dismissal Motion

Form PF (here) is a reporting form that requires private fund advisers to report regulatory assets under management to the Financial Stability Oversight Council (FSOC). On February 8, 2024, the SEC and the CFTC announced amendments to the Form PF disclosure requirements (as reflected here and here). In the following guest post, Geoffrey Fehling, Scott Kimpel, and Evan M. Holober of the Hunton Andrews Kurth law firm review the new disclosure requirements and consider the potential liability exposures and possible insurance implications. A version of this article previously was published as a Hunton Andrews Kurth client alert (here). I would like to thank the authors for allowing me to publish their article as a guest post on this site. I welcome guest post submissions from responsible authors on topics of interest to this blog’s readers. Please contact me directly if you would like to submit a guest post. Here is the authors’ article.

Continue Reading Guest Post: Insurance Implications of SEC and CFTC’s New Form PF Requirements

On March 6, 2024, in a decision that has attracted a lot of attention in the business press, the Eastern District of Virginia, applying Virginia law, held that the bump-up exclusion in Towers Watson’s D&O insurance policy precludes coverage for the $90 million paid in settlement of claims relating to the firm’s January 2016 merger with Willis Group Holdings. As discussed below, the court’s ruling highlights recurring issues concerning the wording of the bump-up exclusion. A copy of the March 6, 2024, opinion can be found here.

Background

Shareholders filed two different sets of litigation against certain directors and officers concerning the Towers Watson merger with Willis. One alleged violation of the proxy solicitation rules under Sections 14(a) and 20(a) of the Securities Exchange Act of 1934. The other was a consolidated shareholder derivative lawsuit that alleged a breach of fiduciary duty in the part of Towers Watson’s CEO. The Actions alleged that the CEO had failed to disclose an alleged conflict of interest while negotiating the merger; specifically, the claimants alleged that while disclosing that he would be the CEO of the merged entity, he failed to disclose discussions concerning a contemplated compensation package potentially worth $165 million. The underlying claims ultimately settled for $90 million.

At relevant times, Towers Watson maintained a program of D&O insurance consisting of a layer of primary insurance and several layers of excess insurers. Towers Watson submitted the underlying lawsuits to its insurers as claims under the insurance program. The insurers covered Tower Watson’s defense costs in the underlying litigation. However, the insurers refused to pay the $90 million settlement amounts, in reliance, among other things, on the policy’s bump-up exclusion. Coverage litigation ensued.

The parties to the coverage lawsuit have extensively litigated whether or not the bump-up exclusion applied. The district court previously ruled that the exclusion did not unambiguously preclude coverage, but the Fourth Circuit reversed the lower court’s ruling and remanded the case back to the district court for further proceedings. On remand, the parties filed cross-motions for summary judgment on the question of whether the bump-up exclusion precluded coverage for the settlements.


The Relevant Policy Language

The bump-up exclusion provides as follows:

In the event of a Claim alleging that the price or consideration paid or proposed to be paid for the acquisition or completion of the acquisition of all or substantially all the ownership interest in or assets of an entity is inadequate, Loss with respect to such Claim shall not include any amount of any judgment or settlement representing the amount by which such price or consideration is effectively increased; provided, however, that this paragraph shall not apply to Defense Costs or to any Non-Indemnifiable Loss in connection therewith.

The March 6, 2024, Order

In a March 6, 2024, Order, Eastern District of Virginia Judge Anthony J. Trenga granted the insurers’ motion for summary judgment, holding that the policy’s bump-up exclusion precludes coverage for the settlement amount.

In ruling on the motion, Judge Trenga addressed three specific questions concerning the applicability of the bump-up exclusion: (1) whether the underlying actions alleged inadequate consideration; (2) whether Towers Watson is “an entity” under the policy whose acquisition is covered by the exclusion; and (3) whether the settlements represent an effective increase in consideration for the merger. Judge Trenga concluded that the answer to each of these three questions is “yes.”

Judge Trenga first concluded that the complaints in the underlying actions “repeatedly” and “unambiguously” alleged that the consideration received by Towers Watson’s shareholders for the merger was inadequate.

Judge Trenga next concluded that Towers Watson is “an entity” for purposes of the exclusion’s applicability, based on the “ordinary and customary meaning” of the term “entity.” Judge Trenga noted that the exclusion’s use of the article “an” is unrestrictive and without limitation. He also noted that elsewhere in the policy where Towers Watson was meant to be excluded from the term “entity,” the policy so specified.

Finally, Judge Trenga concluded that the settlement amounts did represent an effective increase in consideration for the merger. Judge Trenga carefully considered what the term “represent” might mean and how it might operate, and whether and to what extent the settlement amount related to the merger consideration. He ultimately concluded that “after giving all the words in the Exclusion their reasonable and ordinary meaning,” that “the Settlements ‘represent’ amounts that ‘effectively increased’ the consideration for the merger, such that the Exclusion unambiguously applies to the Settlement.”

Discussion

Other readers may focus on other aspects of Judge Trenga’s ruling. But for me, the interesting part of Judge Trenga’s opinion is the part where he concluded that Towers Watson is “an entity” with respect to which additional consideration paid for its acquisition is precluded under the policy. Although Towers Watson vociferously opposed this conclusion, I have to say that from my perspective, given the wording, the outcome is not unexpected.

The court’s conclusion that the exclusion applies to the acquisition of Towers Watson itself (as opposed to Towers Watson’s acquisition of another company) for me highlights a recurring concern about the wording and application of the bump-up exclusion. With respect to an exclusion with this wording, it arguably is no surprise that the bump-up exclusion would apply to the acquisition of the insured entity. The question for me is whether the exclusion should apply when the insured company is the acquired entity, or whether the exclusion properly should be worded so as to only apply when the insured company is the acquiror.

The bump-up exclusion in many, if not most, of the policies available on the market operate so as to preclude coverage for amounts of increased merger consideration regardless of whether the insured company is the acquiror or the acquired entity. However, there is an alternative wording in at least some policies available on the market under which the exclusion only operates to preclude coverage for the payment of increased merger consideration if the insured entity is the acquiror; this alternative wording would not preclude coverage where, as here, the insured entity is the merger target.

As I have detailed in prior posts, I have long believed that these issues surrounding the bump-up exclusion wording represent a question that is ripe for discussion within the D&O insurance industry.  The industry and its customers would benefit from a discussion of the issue of whether the bump-up exclusion should apply both when the insured company is the acquiror and when it is the acquisition target, or whether it should apply only when the insured company is the acquiror but not when the insured company is the target.

From my perspective, the insurance considerations are categorically different depending on whether the insured company is the acquiror or the acquisition target.

On the one hand, if the insured company is the acquiror, the company cannot simply underpay for an acquisition and then turn to its insurer as if the insurer were some kind of third-party capital partner with the expectation that the insurer should make up the shortfall. In that circumstance it is quite reasonable that the amount of the shortfall should be excluded from coverage.

On the other hand, if the insured company is the acquisition target and shareholders have alleged that the company and its executives wrongfully agreed to sell the company for an insufficient amount, those allegations look an awful lot like the very kind of thing that the policy is designed to insure against; the shareholders’ allegations that in agreeing to sell for an insufficient amount the executives breached their duty of care or loyalty or made misrepresentations have all the hallmarks of a classic D&O claim. In my view, the shareholders’ damages for the executives’ alleged violations of their duties in agreeing to sell the company for an insufficient amount arguably represent the very kind of thing for which the policy should provide protection. On the exclusionary wording that was applicable here, that kind of protection was held not to be available. The question for me is not whether or not that is the correct outcome based on the language applicable here; the question is whether the wording applicable here is the correct wording given the purposes of the D&O insurance policy.

I understand that others will have different views on this topic, which is the reason I think there would be value for the D&O insurance industry for further consideration of these issues. I think everyone would benefit – insurers and policyholders alike – if there were to be a further consideration of the bump-up exclusion and a reconsideration of what its purposes are and how it should operate in light of the larger purposes of the D&O insurance policy.

Special thanks to a loyal reader for sending me a copy of the Towers Watson opinion.

As reflected in my recent post, last week I attended the PLUS D&O Symposium in New York. The sessions were great, but based on some comments of various panelists, there are some items for follow-up – for example, references that panelists made that need to be checked out, items that panelists suggested we should pursue, and so on. I have run down these various items, and I link to them below. I emphasize that these items will be of interest even if you didn’t attend the Symposium. I have also included below several other items from around the Internet as well.

A.M. Best Assigns Negative Outlook to U.S. D&O Segment: Several different speakers at the D&O Symposium mentioned the action last week by A.M. Best to assign a negative outlook to the U.S. D&O insurance segment. A copy of A.M. Best’s March 4, 2024 press release discussing the action can be found here.

The press release reports that the rating agency took the action as increased capacity has led to competition and lower pricing in the D&O space. In addition, reduced IPO activity has meant lower demand, as well. The report notes that premium is down 20% from its 2021 peak of $14.9 billion. Best estimates that full-year 2023 premium will come in around $12 billion. The rating agency’s press release quotes one of its senior financial analysts as saying, “The current pricing environment may prove unsustainable based on developing losses and how those losses affect company underwriting results prospectively.”

The Delaware Chancery Court’s Ruling in the Walgreens Case: For those you who attended Wednesday’s securities litigation panel, you will recall that Koji Fukumura of the Cooley law firm suggested, in the context of a discussion about Delaware case law concerning the Duty of Oversight, that we (that is, the audience) should take a look at the recent Delaware Chancery Court opinion in the Walgreens case. I was able to quickly find the February 19, 2024, opinion in the case, here. Upon review of the opinion, it is clear why Fukumura urged the audience to review the opinion.

The Walgreens case involves a shareholder derivative suit relating to various investigative matters concerning the company’s system for dispensing and billing for prescribed insulin pens. A qui tam action and a DOJ investigation raised allegations that the system’s procedures resulted in premature and/or unnecessary insulin pen refills. The DOJ investigation ultimately resulted in a $209.2 million settlement.

In 2021, two shareholders filed the derivative suit against Walgreen’s board, alleging among other things that the directors breached their duty of oversight in connection with the company’s prescription management system as pertained to the insulin pens. The defendants filed a motion to dismiss, arguing that the plaintiff had failed to make the requisite pre-suit demand on the board and that the complaint failed to establish demand futility. In opposing the motion, the plaintiffs argued that demand was futile because a majority of the directors faced a substantial likelihood of unexculpated liability for breach of the duty of oversight.

In a February 19, 2024, opinion, Vice Chancellor Lori Will granted the defendants’ motion to dismiss, holding that the plaintiffs’ complaint failed to establish demand futility. In granting the motion, VC Will expressly rejected the plaintiffs’ argument that a majority of the directors faced a substantial likelihood of liability for breach of the duty of oversight.

In ruling that the plaintiffs had not established a substantial likelihood of liability, VC Will concluded that the plaintiffs had failed to establish either a prong one/information systems oversight duty breach or a prong two/red flags breach.

With respect to the prong one-type claim, VC Will found that the complaint itself showed that the board was aware of and engaged with the company’s compliance issues. The plaintiffs sought to argue that the board’s oversight controls were ineffective. VC Will said that “how directors choose to craft a monitoring system in the context of their company is a discretionary matter.” In any event, she found that the system worked, as the complaint shows that when company officials became aware of the insulin billing concerns, the board was informed, and the company took corrective steps.

VC Will also found that the plaintiffs’ allegations failed to establish a prong two/red flag oversight duty breach. She found that the allegations “reflect a Board that was engaging with its oversight function – not one that decided to turn a blind eye to corporate wrongdoing.”

Having ruled against the plaintiffs, VC Will went on to comment on duty of oversight cases generally. She noted that while there may be the “rare event” when directors “cross the red line of bad faith,” and liability can arise, “more harm than good comes about if Caremark claims are reflexively filed” whenever the company “encounters an adverse circumstance.” Such an expansion of Caremark “risks weakening the ‘core protections’ of the business judgment rule’” and “from a practical standpoint, it drains resources from the very corporations that derivative plaintiffs purport to represent.”

VC Will is clearly dismayed that over the past several years, “Caremark suits have proliferated in Delaware.” The cases of this type that are “viable” are based on corporate records that show “a complete failure to oversee related core risks.” Unfortunately, she observed, “many” cases “fall outside the narrow confines of the Caremark doctrine.” She said of these cases that “Fueled by hindsight bias, they seek to hold directors personally liable for imperfect efforts, operational struggles, business decisions, and even when the corporation is the victim of crime.” This case, she said “is an unexceptional member of this broader group.”

VC Will’s opinion in this case is something of a companion to her December 2023 opinion in the Segway case, discussed at length here. Both opinions seem calculated to try to address what she expressly references as the “proliferation” of oversight duty breach cases. In both opinions, she seems to expressly aim to cut off oversight duty breach cases based on nothing more than allegations of “imperfect efforts, operational struggles, and business decisions.”

VC Will’s message matters, in my opinion, not just in the specific context of these cases, in the larger context as well. There has been a been a great deal of speculation amongst various commentators and observers that oversight duty breach cases could emerge from various kinds of current litigation risk exposures, such as, for example, with respect to cybersecurity, ESG, and AI. VC Will’s opinions in both the Segway case and the Walgreens case seem to be intended to communicate to would-be oversight duty breach claimants “Not so fast.”

Securities Litigation Settlement Data: Those who attended Wednesday’s securities litigation panel at the D&O Symposium also received some information about recent securities class action lawsuit settlement trends. Those who would like to have the data behind the settlement statistics will want to refer to Cornerstone Research’s recent publication, “Securities Class Action Settlements: 2023 Review and Analysis,” which can be found here. This new report was actually released on Wednesday, the same day as the D&O Symposium securities litigation panel. Cornerstone Research’s March 6, 2024, press release about the report can be found here.

Among other things, the report shows that the number of securities class action lawsuit settlements in 2023 declined 21% compared to 2022, but that the median settlement during the year of $15 million was the highest amount since 2010. The average settlement during 2023 of $47.3 million was higher both than the 2022 average of $37.9 million and the 2018-2022 average of $46.5 million. The higher median and average settlements in 2023 may be reflection of the increased involvement in settlements during the year of larger companies.

SolarWinds: The government regulation and investigations panel on Wednesday morning was excellent. However, I suspect that there were a fair number of audience members who were confused about the panelists’ discussion of the potential liabilities of “See-sohs.” I confess that at first even I was not sure what the speakers were talking about. It took me a few beats, but I realized that there was talking about what I have always referred to as “See-eye-ess-ohs” – that is, CISOs, or Chief Information Security Officers. (I suspect that there are a number of readers that, have read the prior sentence, said to themselves, “Oh! That is what they were talking about!”).

The discussion of CISOs’ potential liability exposures related specifically to the SEC’s enforcement action in the SolarWinds case, which is discussed at length here. Readers may also want to refer to the recent guest post by Priya Huskins of the Woodruff Sawyer firm about the SolarWinds case, possible CISO liability, and related insurance issues.

Shortest Class Period Ever?: Many attending the PLUS D&O Symposium may not have seen that on March 5, 2024, a plaintiff shareholder filed a securities class action lawsuit against Lyft and certain of its directors and officers. The lawsuit relates to the snafu in Lyft’s February 14, 2024, earnings release. The release said that the company’s profit margin had increased by 500 basis points, which caused the company’s share price to surge (according to the Wall Street Journal, the company’s share price rose over 60%). In an analyst call shortly after the press release was disseminated, the company’s CFO clarified that the earnings release should have stated that the company’s profit margins increased by 50 basis points, not 500 basis points. The company’s CEO said, “That’s a bad error, and that’s on me.”

In their complaint, the plaintiffs purport to have filed the lawsuit “on behalf of a Class of all persons who purchased or otherwise acquired Lyft common shares on a U.S. open market during the class period February 13, 2024, at 4:05 p.m. through February 13, 2024 at 4:51 p.m.” In other words, the plaintiff is seeking a class period that is 46 minutes long.

I don’t know if that is the shortest class period ever, but it has be right up there. The one thing I do know is that the plaintiff in this case is going to have a really hard time showing scienter.

Fed Chair: There Will Be Bank Failures: Symposium attendees who were on their way home last Thursday may not have seen the news about Fed Chair Jerome Powell’s testimony on March 7, 2024, before the Senate Banking Committee. Powell, who was testifying about current Fed monetary policy, was asked about possible problems for banks due to problems in the commercial real estate (CRE) sector. (Regular readers know that I have written frequently on this site about the challenges some banks are facing owing to their CRE exposures, most recently here.)

As reported in a March 7, 2024, article in The Hill (here), Powell said during his Senate testimony that he expects to see some banks fail due to their exposure to the commercial real estate sector, which has declined significantly in value following the shift to remote work. The article quotes Powell as saying “This is a problem we’ll be working on for years more, I’m sure. There will be bank failures.” Powell said doesn’t expect these issues to affect the larger banks; it is, he said, more of a problem for “smaller and medium-sized banks.”

For anyone concerned about the health of the banking sector, these statements are deeply troublesome, in two ways: first, because of the prospect of bank failures ahead, and second, that the current adverse circumstances in the banking sector are going to be around “for years.” That the problems are unlikely to affect the large banks is some consolation, but the prospects for small and medium sized banks, or at least some of them, according to the Fed Chair’s remarks, look gloomy.

Nighttime in Times Square

This week I was in New York for the 2024 PLUS D&O Symposium, along with a thousand or so professionals from around the D&O insurance community. PLUS staged the conference at the Marriott Marquis hotel in Times Square, the bright, beating heart of NYC. No matter how many times you may visit, there is still something special about being in New York. The conference was great as well, a great chance to catch up on the latest news and developments, to meet with my many friends in the industry, and to make some new friends, as well.

Continue Reading PLUS D&O Symposium 2024

On March 6, 2023, a divided SEC, and based on a 3-2 vote, adopted its final climate change disclosure guidelines. The guidelines as adopted are significantly watered down from the draft guidelines originally proposed; for example, the final guidelines do not require  disclosure of so-called Scope 3 greenhouse gas emissions (GGE). As discussed below, the new guidelines will almost certainly face legal challenge. The SEC’s March 6, 2024, press release about the new rules can be found here. The actual rules themselves can be found here. An SEC fact sheet about the new rules can be found here.

Continue Reading SEC Adopts Final Climate Change Disclosure Guidelines – What Next?

As readers know, in recent years I have been tracking two securities class action litigation filing trends:  the filing of SPAC-related lawsuits, and the filing of COVID-related lawsuits. In a noteworthy development, a securities suit filed last week embodies both of these filing trends. That is, a company that was formed through a SPAC merger has been hit with a securities suit based on COVID-related allegations. As discussed below, the new lawsuit has several interesting features. A copy of the February 28, 2024, complaint can be found here.

Continue Reading Two-Fer: SPAC-Merged Company Hit With COVID-Related Securities Suit