In a prior post, I speculated how WikiLeaks-style disclosures might fuel claims against corporate officials, to the extent that the previously nonpublic information conflicted with public statements. The latest round of WikiLeaks disclosures includes revelations that provide a more specific example of this type of process at work.
The latest revelations are in the form September 2009 diplomatic cables from the U.S. Embassy in London, published in The Guardian on December 13, 2010. The cables can be found here. The cables summarize meetings held September 2-7, 2009 between two U.S. senators and three members of the House of Representatives and various Members of Parliament, U.K. government officials and leading banking executives.
The meetings largely involved the discussion of the causes and lessons of the global financial crisis.
Among the sessions summarized in the cables is a separate meeting between the three congressmen and RBS Chairman Philip Hampton. Hampton was appointed to the post by the U.K government in February 2009. In the meeting, Hampton commented on the involvement of RBS in the financial crisis.
The cables quote Hampton as having said that RBS "had made several enormous mistakes," the most significant of which were the bank’s "heavy exposure to the U.S. subprime market and the bank’s purchase of ABN Amro."
With respect to the ABN Amro purchase, Hampton commented that it had "occurred at the height of the market and without RBS doing proper due diligence prior to the purchase." Hampton commented that "the board of directors never questioned this purchase," which Hampton termed "a failure of their fiduciary responsibilities."
The timing of these revelations is awkward, to say the least, both for RBS and for the U.K. Financial Services Administration, coming as it does just days after the FSA announced that it had closed its RBS investigation and would take no further regulatory or enforcement actions.
In a December 2, 2010 statement (here), the FSA said it was closing its supervisory investigation of RBS, noting that while its investigations had revealed a number of "bad decisions" at the bank, the FSA had concluded that those "bad decisions" were "not the result of a lack of integrity by any individual." The FSA statement added that "we did not identify any instances of fraud or dishonest activity by RBS senior individuals or a failure of governance on the part of the Board."
A December 13, 2010 article in The Guardian (here) suggests that the latest WikiLeaks investigations could lead to "pressure" on the FSA to reopen the RBS probe. The Guardian article also attributes statements to attorneys that Hampton’s reported remarks "could be crucial for any shareholders trying to bring legal action for the losses they sustained on their shares." particularly with respect to losses shareholders sustained in connection with the company’s 12 billion pound share offering in March 2008.
Whether or to what extent these revelations will lead to new or augmented litigation involving RBS and its current and former directors and officers remains to be seen. But regardless of what might arise as a result of this specific disclosure, the event itself highlights the problems that companies may face as a result of WikiLeaks-type disclosures.
As I have previously noted, the WikiLeaks-type of disclosure of internal or confidential communications potentially could represent a new type of threat for corporate officials. There may be and likely will be WikiLeaks imitators willing to ambush companies and executives with undisclosed communications obtained in any number of ways, which could not only be embarrassing but could also subject them to claims.
"Structural Corruption": James Fallows has an interesting commentary in a December 10, 2010 post on his blog on the Atlantic Monthly website about the decision of former Office of Management and Budget director Peter Orzag to accept a senior position at Citibank, a financial institution that received substantial federal bailout support during the financial crisis.
Among other observations, Fallows notes the "structural corruption" Orzag’s move represents (drawing a distinction to "personal corruption) in that, which there may be nothing formally wrong with the move, it "says something bad about what is taken for granted in American public life.."
I think Fallows’ comments are worth contemplating. I am sure I am not the only one that found the depth of involvement of Wall Street insiders during the financial crisis more than a little disturbing. What Fallow describes as the structural corruption is the very thing that left so many Americans suspicious that the bailout was an inside job, meant to protect financial interest at the expense of American taxpayers. The certainty that Washington insiders can look forward to making millions on Wall Street merely reinforces this perception of corruption. And yet, as Fallows note, it is taken for granted.
Introduction to D&O Insurance: Many readers may be familiar with my series of posts on the Nuts and Bolts of D&O Insurance, which can be accessed by clicking on the link in the right hand column. Readers who are interested in the basics of D&O insurance may also want to read "Directors and Officers Insurance: An Overview" (here) by my friend David Gische of the Troutman Sanders law firm, and his colleague Meredith Werner. The article includes important historical background on the development of the insurance product.