Mayme Donahue

In recent months, the SEC’s position with respect to AI regulation and enforcement has emerged, with important implications for reporting companies. In the following guest post, Mayme Donohue, a partner in the Hunton Andrews Kurth law firm takes a detailed look at the SEC’s emerging approach and provides specific pointers for reporting companies’ AI-related disclosures. I would like to thank Mayme for allowing me to publish her article as a guest post on this site. Here is Mayme’s article.

Continue Reading Guest Post: AI, the SEC, and the 2026 Reporting Season

As noted in prior posts on this site, trouble recently has been brewing in the private credit market. Borrower defaults have led to bankruptcies, civil lawsuits, and even criminal indictments. D&O litigation has now arrived on the lender side as well, as earlier this week an investor filed a securities class action lawsuit against BlackRock TCP Capital Corp, the private credit arm of finance giant BlackRock. As discussed below, the new lawsuit highlights the ways in which the current turbulence in the private credit sector can translate into D&O claims, including in particular claims against private credit lenders. A copy of the BlackRock TCP Capital complaint can be found here.

Background

BlackRock TCP is a business development company (BDC) that raises funds from investors and then uses those funds to make loans to small and midsize businesses as an alternative to bank financing. BlackRock acquired the firm’s investment advisor in 2018. The firm’s shares are publicly traded on Nasdaq.

Among factors the company tracks to measure its financial health, the company reports on its “net asset value,” which in turn impacts the trading price of the company’s shares. Net asset value (NAV) refers to the value of the Company’s underlying assets, minus their total liabilities. Calculating the net asset value depends on the company making an estimate of the fair value of the firm’s assets.

On February 27, 2025, the company issued a press release reporting on its fourth quarter and full year 2024 financial results. Among other things, the press release disclosed that the number of portfolio companies on non-accrual status had more than doubled, and that the company’s NAV had fallen over 22% during the year. Loan losses, realized and unrealized, had increased 186% largely due to the addition of a newly added $72 million unrealized fourth quarter loss. Despite these developments, the complaint alleges, the company represented that its present NAV of $9.23 per share was accurate and that “the vast majority of the Company’s portfolio continued to perform well.” The company’s share price declined nearly 10% on this news.

On January 26, 2026, the company disclosed certain fourth quarter and full year 2025 financial results, including that the Company’s NAV per share as of December 31, 2025, was in the range of $7.05 to $7.09, 19% less than reported the prior quarter and 23.4% less than reported the prior year. According to the complaint, the company’s shares declined nearly 13% on this news.

The Lawsuit

On February 3, 2026, a plaintiff shareholder filed a securities class action lawsuit in the Central District of California against the company and certain of its executives and officers. The complaint purports to be filed on behalf of investors who purchased the company’s securities between November 6, 2024, and January 23, 2026.

The complaint alleges that the defendants failed to disclose to investors: “(1) the Company’s investments were not being timely and/or appropriately valued; (2) the Company’s efforts at portfolio restructuring were not effectively resolving challenged credits or improving the quality of the portfolio; (3) as a result, the Company’s unrealized losses were understated; (4) as a result, the Company’s NAV was overstated; and (5) that, as a result of the foregoing, Defendants’ positive statements about the Company’s business, operations, and prospects were materially misleading and/or lacked a reasonable basis.”

The complaint alleges that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint seeks to recover damages on behalf of the plaintiff class.

Discussion

The private credit industry, which includes companies like BlackRock TCP Capital and other kinds of firms, operates through non-bank lending, mostly to small and mid-sized companies. These kinds of lenders stepped into the gap created after the global financial crisis, when regulatory changes made banks less willing to lend to certain borrowers. The industry has grown rapidly in recent years.

A series of high-profile corporate failures – including, for example, Tricolor and First Brands – highlighted growing credit risk within the private credit market and raised concerns about the quality of the underlying loans, particularly with respect to loan valuations and transparency.  The Tricolor and First Brands failures also raise concerns about possible borrower fraud.

As detailed in prior posts on this site (here and here), the Tricolor and First Brands collapses have resulted in D&O claims against the firms and their executives. Both of those examples involve private credit borrowers.

This latest private credit-related lawsuit against BlackRock TCP Capital may be differentiated from the prior claims involving Tricolor and First Brands because it involves not the private credit borrowers, but rather because it involves a private credit lender.

The new lawsuit against BlackRock TCP Capital is not, however, the first securities class action lawsuit involving a private credit lender.

For example, and as discussed here, in December 2025, Blue Owl Capital, one of the largest private credit lenders, was sued in a securities class action lawsuit, in a case alleging that Blue Owl and the other defendants misrepresented the firm’s liquidity, redemption conditions, and the merger risks involving its private credit vehicles. A different investor filed a separate lawsuit against Blue Owl in January 2026, as discussed here, alleging that the company had misrepresented the level of investor redemptions the company was facing.

Problems in the private credit sector seem likely to continue in the weeks and months ahead. Concerns about loan quality and possible fraud, arising among other things from the Tricolor and First Brands situations, will continue to weigh on the firms. By the same token, concerns about valuation and about redemptions will also weigh on private credit firms. In particular, spikes in redemptions could firms to sell assets, revise redemption policies, which could further undermine investor confidence.

Readers interested in thinking more about the underwriting risks associated with the current turbulence in the private credit segment will want to review the prior posts on this site written by frequent guest contributor Sarah Abrams. Her prior posts, which discuss in greater detail the source of the concerns in the private credit industry as well as the associated potential D&O liability exposure, can be found here and here.

The problem for all of us is trying to think about how big the problems in the private credit market will prove to be. While there is nothing at the moment to directly suggest that the issues in the private credit market involve the same kind of systemic risk that caused the subprime crisis to become of global financial crisis, memories of that prior crisis are too fresh to simply dismiss the possibilities. Even if the possibility of another global financial crisis is unlikely, the possibility of a correction – perhaps a painful one – cannot be ruled out.

Maybe these concerns are overstated. I certainly hope so. However, and just the same, I am going to be keeping an eye out for further developments involving firms in the private credit sector. I am sure I will not be the only one.

The filing of AI-Washing related securities suits is by now a well-established phenomenon. But a securities suit filed earlier this week presents an interesting new variant on this phenomenon. The new lawsuit alleges that the defendant company used the announcement of a supposed AI-related “collaboration” with Microsoft allegedly to “pump” the company’s share price just before disclosing an at-the-market private placement. As discussed below, the new lawsuit is just the latest in a recent series of securities class action lawsuits alleging share price pumping schemes.

Continue Reading Securities Suit Alleges AI-Washing Stock Price “Pump”
Sarah Abrams

In the following guest post, Sarah Abrams, Head of Claims Baleen Specialty, a division of Bowhead Specialty, reviews the latest developments in SPAC-related Delaware Chancery Court proceedings, in light of the recent resurgence in SPAC transactions in the financial marketplace. I would like to thank Sarah for allowing me to publish her article as a guest post on this site. Here is Sarah’s article.

Continue Reading Guest Post: Delaware Court Allows Core De-SPAC Fiduciary Duty Claims to Proceed

The D&O Diary was on assignment last week with a first stop in Napa Valley in California, followed by a weekend visit to Tucson, Arizona. Although I have visited Napa several times before, it has been a while since I was last there. I had forgotten what a beautiful place it is and how much fun it is to visit.

My primary purpose for traveling to Napa was to participate as a speaker at Inigo’s 2026 Securities Litigation Panel Event. The event was held at the beautiful Four Seasons Napa Valley Resort in Calistoga, at the Northern end of the Valley. It was a pleasure and an honor to be a part of this excellent event again, which was first class in every respect. My thanks to Yera Patel, Ed Whitworth, Tom Ielapi, and all of their Inigo colleagues for inviting me to be a part of this event. It was a great success and a tremendous amount of fun. It was particularly enjoyable to see so many industry friends in such a pleasant setting.

It was an honor to be a part of this distinguished panel. From left to right: mediator David Murphy of Phillips ADR Enterprises; Jonathan Gardner, Managing Partner of the Labaton, Keller, & Sucharow law firm; Tom Ielapi of Inigo; me; Yera Patel, of Inigo, who moderated the panel; and Audra Soloway, of the Paul Weiss law firm. It was an excellent panel and it was great to be a part of it.
After the session, everyone gathered in the bright January sunshine for a wine tasting, followed by lunch. This was a great event for me personally, as it gave me the opportunity to meet a host of industry colleagues.
One of the great things about this event was the chance to meet so many enthusiastic readers of The D&O Diary. This group of young professionals from Marsh made a point of introducing themselves to me and sharing with me how much they enjoy the blog. From left to right: Lauren Kauffman; Sharon Sotelo; Abigail Williams; Emily Graham; Melinda Flyash; and Hilary Gates.
In addition to meeting so many industry professionals at this event, I also had a chance to catch up with some old friends as well, including my good friend Jackie Waters of AON. Many of you will know that Jackie is the immediate past President of PLUS.
I also had the chance at this event to take my annual photo with Yera Patel of Inigo. As is always the case, this year’s version is a great picture of Yera and a goofy picture of me.
It is also great at an event like this to have catch up with industry professionals and to find out what is going on in the market, including, for example, talking with Dan Lindell and Shari Cornaggia of Newfront (or should I say WTW?).
Here’s a picture with my good friend Laura Markovich of the Skarzynski, Marick, & Black law firm. Laura is one of the co-Chairs of the upcoming PLUS D&O Symposium.
I also had the chance at this event to spend some time getting to know many of the professionals at Inigo, including Diane Lenkowsky and Oshana Bentomane. Over dinner, I learned that Oshana is planning an elaborate U.S. road trip, the plans for which grew increasingly more ornate during the course of this event. She is now accepting applications for the tour driver position. (Independent wealth is a prerequisite.)
With Katie Myczek of AON, in Chicago. I first met Katie at a prior Inigo event.

Two more fans of The D&O Diary! Charlie Fox and Gabby Trinh, both of AON.

Here’s a photo with Charlotte Glessner-Fischer of Marsh. I was fortunate to sit next to Charlotte during lunch. I thoroughly enjoyed meeting Charlotte, just a delightful person.

Here’s a group photo with all of the professionals from Inigo. I particularly want to point out Becky Jackson, on the far left, who helped plan this event and who was particularly helpful to me as I prepared for and made my arrangements. Thank you, Becky!
Even in its mid-Winter dormancy, Napa Valley is so beautiful.
A view of Calistoga and of Napa Valley from above.

Before heading back home to the snow and ice, my wife and I spent a long weekend in Tucson, for some hiking in the Catalina Mountains.

For our first day hike, we explored Sabino Canyon, walking 12 miles along the steep, rocky canyon slopes covered with saguaro, cholla, octillo, and palo verde trees.
Sabino Creek, which flows along the canyon bottom, swollen by winter rains.

I have a hotel recommendation for anyone thinking about traveling to Tucson. We stayed at the Hacienda del Sol, a wonderful resort where we have stayed multiple times before. We first stayed at the hotel in 1999. The resort has expanded since then, with the addition of flashy, high-end facilities. We prefer to stay the hotel’s historic core, which was originally built as a girls’ school in the early 20th century. The original buildings have charm and character. We recommend the “Lana Turner” suite.

The central courtyard at the Hacienda del Sol.
The view from the hot tub, in the old part of the hotel property, at the Hacienda del Sol. Where tired hikers go at the end of a long day in the mountains.
Edgar A. Neely IV
Scott N. Sherman

The arrival of a securities class action lawsuit can be and often is a watershed moment in the life a public company. In the following guest post, Edgar A. Neely IV and Scott N. Sherman provide a basic briefing for directors concerned about securities litigation. Edgar and Scott are both partners at the Nelson Mullins law firm. I would like to thank Edgar and Scott for allowing me to publish their article on this site. Here is the authors’ article.

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As we kick off the new year, the risk of shareholder litigation remains a significant reality for public companies and their boards.  For example, a Cornerstone Research report in September 2025 showed that merger and acquisition-related litigation in Delaware has increased based both on volume and average settlement value.  (See the Cornerstone press release here). Recent years have also seen an increase in the value of derivative settlements, with at least 12 derivative settlements over $100M since 2020.  This trend serves as a stark reminder that shareholder litigation can present financial exposure not just for a company but also personally for its directors.

Understanding important concepts about shareholder litigation can help companies and their directors mitigate risk and assess potential strategies.  With that in mind, the five key considerations below provide important and actionable context for directors to know when it comes to shareholder litigation, from protections like insurance and exculpation to considerations on strategy and risk mitigation.   

  1. It’s important to assess and understand D&O insurance and other protections

Directors and officers (“D&O”) insurance is critically important to protect board members from personal financial exposure in shareholder litigation.  Board members should thus understand D&O insurance and engage with management in selecting an appropriate policy. 

A primary consideration is the appropriate amount of coverage, which requires assessing the circumstances and risk profile of the company.  It’s also important to understand the different “sides” of D&O insurance and how much coverage is available for “Side A.”  At a high level, D&O insurance in typically broken into three sides: “Side A” covers individual directors and officers, “Side B” provides reimbursement to the company after it indemnifies individual directors and officers, and “Side C” covers the company for its securities litigation risk.  Assessing the coverage amount for Side A, whether there is “difference in conditions” (DIC) coverage, and the terms of any conduct exclusions are each critical in the policy selection process. 

The company can also offer protections through its articles of incorporation and bylaws.  A company’s articles of incorporation can exculpate directors from personal liability for duty of care claims.  Its articles of incorporation and bylaws can also include provisions for indemnification and fee advancement for directors and officers.  But, importantly, the extent of these protections is often limited by state law to exclude circumstances like bad faith or intentional misconduct. 

It’s important for the board to understand these protections on the front end and, should litigation arise, consult with counsel to review and secure the available rights and protections from personal exposure. 

2. State of incorporation matters

The decision of where to incorporate (or reincorporate) and developments in the “DExit” movement continue to be hot topics in corporate governance, as discussed in our firm’s Corporate Governance Insights series (including installments in March, June, and July, and November 2025).

The laws of a company’s state of incorporation generally govern matters concerning the relationship between the company, its directors, and its shareholders.  As a result, key issues directly related to shareholder litigation can be meaningfully different depending on the state of incorporation. 

For example, shareholders often make a books and records request (called a “Section 220 demand” in Delaware) to gather information from the company before pursuing legal action.  State law on the requirements for shareholders to obtain the information and the scope of information they may be entitled to varies from state-to-state, directly impacting the company’s options in assessing a response to the request.  Similarly, how a shareholder may bring a derivative action differs depending on the laws of the state of incorporation.  And beyond procedural issues, substantive legal rules can vary among states. 

Retaining knowledgeable counsel on the applicable state’s rules and standards is vital to understanding the key issues and assessing available strategies related to shareholder claims.      

3. The type of shareholder action matters

Two common types of shareholder actions are (1) securities class actions, and (2) derivative actions. Securities class actions are brought by shareholders to recover for their alleged losses. These actions typically involve claims against the company itself and its chief executives under federal securities laws—often based on certain public statements alleged to be fraudulent. By contrast, derivative actions are brought by the shareholder “on behalf of the company” against the company’s officers or directors for alleged harm suffered by the company.  They typically involve claims for breach of fiduciary duty, unjust enrichment, and corporate waste against the company’s officers and directors. 

Each type of action has its own unique considerations.  For example, because derivative actions are brought by shareholders on behalf of the company, they may be subject to dismissal if the shareholder fails to meet certain base-line requirements to proceed on the company’s behalf.  Derivative actions can also be dismissed if an independent board or special committee determines the action is not in the best interests of the company based on a reasonable and good faith investigation.  This process requires several key considerations, including each board member’s independence, whether it’s necessary to form a committee for the investigation, the scope of the committee’s decision-making authority, and obtaining independent counsel for the committee.  For additional detail on derivative investigations and the role of related committees, see our firm’s publication here. 

Securities class actions also involve distinct issues and strategy points.  The company may seek early dismissal based on the stringent requirements a shareholder must meet to properly allege federal securities fraud.  Defeating class certification presents another critical point in the case and requires detailed analysis of the class allegations and key legal arguments.  Key issues in the analysis include the shareholder’s standing (i.e., ability to represent and bring the alleged class claims) and challenging the “fraud-on-the-market” theory (i.e., that the alleged misrepresentations inflated the company’s stock price).     

Overall, both types of actions present complex legal and procedural issues, making it crucial to engage legal counsel early on to assess and develop an appropriate response.  And as noted above, early consultation with counsel is also important to understand and secure the available rights and protections against personal exposure, such as D&O coverage.

4. Parallel shareholder actions are common and require careful assessment

Securities class actions often involve an accompanying (or parallel) derivative action based on similar or related allegations.  According to Cornerstone Research, nearly half (47%) of the securities class action settlements between 2019 to 2024 involved parallel derivative actions.  (The Cornerstone Research report can be found here.) 

Because decisions and activity in one action can impact the other, it’s important to avoid handling parallel actions in a vacuum.  For example, derivative actions often seek indemnification for the amounts paid by the company in the parallel securities action. Liability for that claim will thus hinge on the outcome of the securities action.  Dismissal of the securities action may also weaken or remove the basis for a parallel derivative action brought on the same allegations.  And if both actions proceed simultaneously, the company is put in the awkward position of defending the allegations against it in the securities action while the derivative plaintiff (on behalf of the company) is actively seeking to prove similar allegations.

For these and other reasons, it often makes sense to stay the derivative action until the related securities action is resolved or until key developments occur, such as a ruling on a motion to dismiss.  Staying parallel derivative actions can serve to avoid inefficiencies, conflicting rulings, and potential prejudice to the company and its litigation interests.  But whether and to what extent a stay is appropriate will depend on the facts and circumstances.

Effectively managing parallel actions therefore requires careful assessment and coordination with legal counsel.

5. Staying informed and documenting board considerations is key

There are several ways directors can mitigate the risk of shareholder litigation.  Among them, a board’s ability to stay informed and document its decision-making process has proven to be crucial.  These practices are important not only for reducing litigation risk overall through board engagement and oversight, but also for limiting personal financial exposure for directors.  

For example, most jurisdictions recognize the business judgment rule, which generally protects directors and officers from liability for decisions made on an informed and good faith basis, and in the honest belief that the action taken was in the best interests of the company.  Taking measures to ensure the board is adequately informed thus provides a strong foundation for the protections of the business judgment rule. 

Recent court decisions have also shown the importance of documenting the board’s receipt and consideration of important information.  This is particularly true with respect to “mission-critical” and compliance-related issues for companies.  A written, non-privileged record of the board’s discussion of such key issues (often via board or committee minutes) can provide a powerful defense to fiduciary duty claims against the board.   

As the securities litigation and corporate governance landscape continues to evolve, it’s important for boards to consult with legal counsel on strategies for risk mitigation.  

These materials have been prepared for informational purposes only and are not legal advice.  This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship.  Internet subscribers and online readers should not act upon this information without seeking professional counsel.

Edgar A. Neely IV is a partner at Nelson Mullins Riley & Scarborough LLP, where he focuses his practice on securities litigation and complex business disputes. He represents companies, their directors and officers, and special litigation committees in securities and shareholder litigation matters. Edgar also represents companies and individuals in investigations and proceedings brought by the SEC and other government and regulatory agencies. He may be reached at edgar.neely@nelsonmullins.com.

Scott N. Sherman is a partner at Nelson Mullins Riley & Scarborough LLP, where he practices in complex business litigation and securities litigation and serves as co-chair of the firm’s Securities and Corporate Governance Litigation Group. He represents public companies, directors, and officers in securities class actions and derivative lawsuits and represents special litigation committees as well as companies and individuals involved in SEC and FINA enforcement proceedings. He may be reached at scott.sherman@nelsonmullins.com.

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Sarah Abrams

In the following guest post, Sarah Abrams, Head of Claims Baleen Specialty, a division of Bowhead Specialty, takes a look at the D&O risks that can arise from crypto-adjacent firms’ use “liquidity pools,” in view of the D&O claims involving the bankrupt digital token firm, SafeMoon. My thanks to Sarah for allowing me to publish her article as a guest post on this site. Here is Sarah’s article.

Continue Reading Guest Post: Liquidity Pool Fraud and D&O Risk

It is no secret that the SEC under the Trump Administration is taking a very different approach to cryptocurrency than the agency did under the Biden Administration. Indeed, a detailed December 2025 New York Times article (here) made it clear – if there were any doubt — that the administration’s more restrained approach to crypto starts at the very top. But what does the more restrained crypto approach mean in practical terms? A January 22, 2026, report from Cornerstone Research, which can be found here, spells out in detail what it means, both in terms of reduced numbers of crypto-related enforcement actions and in diminished crypto-related recoveries.

Continue Reading SEC: Less Crypto Enforcement, Lower Crypto Recoveries
Sarah Abrams

The current private credit market turmoil has involved a number of high-profile company failures and ensuing D&O claims. In the following guest post, Sarah Abrams takes a closer look at one recent example of these developments — the bankruptcy of Tricolor Holdings and the ensuing criminal indictment — and considers the broader potential D&O liability and insurance implications. My thanks to Sarah for allowing me to publish her article on this site. Here is Sarah’s article.

Continue Reading Guest Post: The Collision of Asset-Based Lending and Governance Failures

Questions whether two sets of circumstances are or are not interrelated are among the most vexing insurance coverage disputes out there. These questions often are even more fraught because of the significant amounts of money that can depend on the answer. All of these considerations were in play in a recent Fourth Circuit decision in which the appellate court concluded in the Under Armour case that because prior shareholder litigation and a later SEC investigation were “logically and causally” related, they represented a single claim triggering only one $100 million insurance tower, rather than a second $100 million tower, as the company had argued. The Court’s January 20, 2026, decision, which highlights the many concerns and considerations that can come into play in these kinds of disputes, can be found here.

Continue Reading 4th Circuit: Shareholder Claims and SEC Investigation “Logically and Causally” Related