Guest  Post: The State of Securities Litigation After Cyan

As I noted at the time, on March 20, 2018, the U.S. Supreme Court issued its unanimous decision in Cyan, Inc. v. Beaver County Employees Retirement Fund, holding that state courts retain concurrent jurisdiction for liability actions under the Securities Act of 1933. In the following guest post, Doug Greene, Jessie Gabriel, Marco Molina, and Brian Song of the Baker & Hostetler law firm take a comprehensive look at the decision, including its context and significance. As the authors note, the decision has important implications for companies and their D&O insurers, as well as for claims going forward. 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

Images of London

A view of The City from Charing Cross Bridge. The dome of St. Paul’s is on the left, the Cheese Grater is in the center, and the Walkie Talkie is on the right.

The D&O Diary is on assignment in Europe this week, with a first stop for meetings and events in London. In between, l had time for some touring around the city. I have visited London many times before, but just the same, I made a commitment to myself that I wouldn’t do anything that I have done before. As the pictures below show, I was largely successful. Continue Reading

Guest Post: Sexual Misconduct Claims: How Charitable is Your D&O Policy?

Mark Sutton

Karen Boto

Among other things, the media clamor about claims of sexual misconduct involving high profile politicians and business executives has in some instances led to D&O claims, as I recently noted. In the following guest post, Mark Sutton and Karen Boto of the Clyde & Co. law firm take a look at this phenomenon, with particular attention to the specific circumstances at two prominent U.K. charities. I would like to thank Mark and Karen 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 Mark and Karen’s guest post.




The headlines over recent months have been dominated by grave allegations of sexual misconduct by politicians, celebrities, sports players and high profile executives.


World leading charities, such as Oxfam and Save the Children, are some of the latest organisations to have become embroiled in such scandals.


Thankfully, as a result of the recent public outcry, there has been a marked increase in efforts to hold the wrongdoers accountable for their alleged misconduct.  However, businesses which are implicated with such scandals are quickly becoming aware of the wider implications these claims can have, with liability typically spreading beyond simply the perpetrator.


Wider liability

Sexual misconduct by a company executive or employee can result in legal claims not only against the accused but also against the company itself, which can be business critical.


If the victim is an employee, unwanted conduct of a sexual nature from a colleague can, of course, form the basis for a sexual harassment claim against the perpetrator and his/her employer. For example, the company may be subject to liability for the accuser’s conduct under negligent hiring or negligent supervision theories. The individual and company may wish to defend their positions and legal fees will be incurred immediately.


In addition to the more traditional employment type claims, there are wider exposures arising from sexual misconduct.


The perpetrator may find themselves the subject of civil or criminal proceedings as a result of his or her actions.  They will also be an obvious target for a claim by the shareholders, acting on behalf of the company, if the alleged misconduct has negatively impacted on the value of the shareholders’ investment.  Any such claim is likely to be based on allegations of breach of duty to act in good faith, or a breach of fiduciary duty to act in the best interests of the company.


Other senior executives may also find themselves facing similar claims if they have turned a blind eye or if they have failed to follow procedures or act on warnings or complaints.


Although it seems unlikely that a company would bring claims against its own board of directors, in the event that the company suffers such reputational damage that it enters into insolvency, liquidators could look to bring claims against the former board members in connection with their failings to adequately handle complaints/allegations over sexual misconduct.


In light of the depressing reality that revelations of sexual misconduct are showing no signs of slowing down, and the apparent drive to hold companies and other executives accountable, this is likely to lead to more internal investigations by companies, possibly resulting in self reporting and external investigations in certain cases.


Companies and their executives may therefore feel the need to look closely at their insurance programmes for cover.


Insurance implications 

Directors and Officers (D&O) insurance will be a potential source of cover for some sexual misconduct-related claims, particularly if an Employment Practices Liability (EPL) extension is present.


D&O insurance generally provides cover for the “wrongful acts” of a company’s directors and officers and as is becoming more common for its employees.


Whilst it will depend entirely on the policy wording, an EPL extension will typically cover claims made by employees based on the alleged misconduct of their co-workers. Most extensions cover claims for sexual harassment, wrongful termination, and discrimination and some may provide coverage for additional employment-related claims, such as defamation or negligent retention and supervision (where entity cover is available).


In order to trigger cover under a D&O/EPL policy, the wrongful act must have occurred whilst the D&O was acting in the course and scope of his or her employment.  This may present obstacles if the alleged misconduct occurred outside of working hours.


Another significant limitation is the common D&O/EPL exclusion for claims alleging bodily injury.  Whilst claims for verbal sexual harassment may be covered under a D&O/EPL policy, claims for physical sexual assault typically are not. If a claimant alleges both verbal and physical harassment or assault, a policy may provide partial coverage.


D&O policies will also typically cover claims made against other executives for breach of fiduciary duty, in the event the shareholders initiate a claim in the company’s name against other executives.


However, as D&O policies also typically contain an “insured vs. insured” ­exclusion, this may operate to preclude cover for claims made by employees (if they are an Insured Person) against an Insured Person (the accused executive) and/or the company. It may operate to exclude insurers’ liability for any claim brought against the board of directors for a failure in their duties against the company, unless there is a claw back of cover in the insured v insured exclusion itself.


Lastly, another common exclusion found in a D&O Policy is the conduct exclusion, which will operate as a bar to cover for any intentional or deliberate fraudulent or criminal acts.  These often require a final adjudication.


Of course, due to the sensitive nature of sexual misconduct allegations and the negative publicity they attract, these types of claims may settle out of court before this exclusion can trigger.


Damage to reputation

In light of the current media focus on these issues, the reputational damage caused by sexual misconduct allegations cannot be underestimated.  The damage to reputation may be more costly to a business than any other litigation expenses.


Oxfam is illustrative of the reputational damage that can be caused by a company’s failure to handle complaints relating to sexual misconduct. The charity has recently faced significant criticism for mishandling allegations of sexual harassment by its employees, causing the charity to suffer reputational damage and embarrassment.


Despite the findings of internal investigations confirming that the charity’s Country Director had used prostitutes, which were possibly under-aged, in his Oxfam-provided accommodation in Haiti, the charity accepted his resignation, allowing him a “phased and dignified exit“. Additionally, concern over the charity’s failure to fully and honestly disclose material details about allegations made against its employees sparked a formal investigation, launched by the Charity Commission.


In light of these findings, Oxfam faced the threat of having its £34 million government funding stripped from it. Oxfam’s management spoke publicly of their fear that fundraising could be hit hard by the damage to the charity’s reputation, and the impact this may have on maintaining the level of investment it currently provides in various projects globally.


It is becoming increasingly more common for D&O policies to provide cover for this type of crisis management.  When a triggering event occurs, a crisis management extension will typically meet the costs of the company hiring a public relations firm to respond to the issue.


Whether this is available to the company will all depend upon whether entity cover is provided. The cover may, however, be useful for the alleged perpetrator, especially where they have been wrongly accused.


Settlement of claims

Settling claims of this nature will also require careful consideration.  Insurers and their insured may find themselves wishing to take a different approach. For example, an innocent insured person, falsely accused of sexual misconduct, or other executives accused of condoning such conduct may, quite understandably, wish to defend claims made against them. Also, a company may not wish to set a precedent as being a soft target, in the event spurious claims are made in future.


Alternatively, an insurer may wish to limit its exposure to defence costs and wider publicity which may fuel further claims, and seek to settle the matter as quickly as possible.


The policy wording will play a crucial role in determining which party has the ability to settle a claim, and how. Typically D&O policies allow the insurer to settle a matter with the prior written consent of the insurer, such consent not to be unreasonably withheld. Provided the insured can identify a credible reason for a proposed settlement, an insurer is not likely to be able to justify withholding its consent.  Likewise an insurer may have difficulty in persuading an insured to settling early if they do feel strongly that they want to defend their position.


Cover for Investigations

Lastly, insurers may need to consider the extent to which cover is provided for investigations. Of course, most D&O policies will provide cover to the individual and/or the company (subject to the exclusions mentioned above) in respect of the defence costs occasioned by criminal proceedings and formal investigations, into named individuals or the affairs of the company generally.


There may be some benefit to insurers covering costs associated with informal, internal investigations in order to avoid the possibility of future claims and decrease their exposure down the line. However, whether this should actually remain a business expense remains controversial.


In recent months, Save the Children has been the subject of heavy criticism, following investigations carried out into the allegations of inappropriate behavior against the charity’s former Chief Executive, Mr Forsyth and former Policy Manager, Brendan Cox.


Internal investigations found that whilst the charity’s policies and procedures were fit for purpose, there were “significant omissions and failures in HR response to historic informal complaints around behavior“. As a result of the investigations, the charity is said to have taken a number of positive steps to prevent future failings to adequately deal with behavioral complaints, including providing employees with compulsory training on acceptable behavior in the workplace and by implementing a whistle-blowing hotline. On 11 April it was announced that the Charity Commission is to open a formal investigation into how the charity dealt with historic allegations of misconduct and harassment against its staff.


If such internal investigations are to remain an uninsured expense, this should encourage companies to ensure that they conduct adequate background checks on their employees, and that their procedures and controls are adhered to in practice, in order to prevent the need of launching internal investigations in the first instance.   It may also promote transparency by requiring appropriate disclosures to be made to shareholders or investors regarding  knowledge of any egregious behaviour.



There are numerous potential exposures relating to sexual misconduct claims.  If and when reviewing policy wordings, to assess the scope of cover provided, D&O insurers should be mindful that wider corporate accountability could become a more significant issue, in the context of sexual misconduct claims, than might have once been envisaged.



Mark Sutton

Karen Boto 

Clyde & Co LLP 

Another Look at 2017 Securities Litigation Against Life Sciences Companies

  1. As I have previously noted, the elevated number of securities class action lawsuits against life sciences companies was an important factor in the increase of securities lawsuit filings in 2017. The significant volume of securities suits involving life sciences companies has been the subject of focused analysis, as discussed here. Now the Sidley Austin law firm has released its exhaustive review of the 2017 securities litigation against life sciences companies. Among other things, the report finds that while the numbers of securities suit filings against life sciences companies has increased in recent years, the companies are faring worse at the dismissal motion stage in the district courts relative to the most recent years. The report summary can be found here. The full report can be found here. Continue Reading

Guest Post: Ten Crypto-Caveats Floyd Mayweather and DJ Khaled Should Have Heard From Their Lawyers

Among the many problems that have come to light in the current cryptocurrency craze have been problems relating to celebrity endorsements for initial coin offerings (ICO). In the following guest post, John Reed Stark, President of John Reed Stark Consulting and former Chief of the SEC’s Office of Internet Enforcement, reviews the highest profile examples of cryptocurrency celebrity endorsements, and then proposes a list of cryptocurrency caveats, for celebrities and for everyone else as well. A version of this article originally appeared on Cybersecurity Docket. I would like to thank John for his willingness to allow me to publish his 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 John’s guest post. Continue Reading

European Commission Proposes Consumer Collective Redress Mechanism

One of the most interesting global legal developments has been the rise in recent years of collective redress mechanisms outside the United States, a phenomenon on which I have commented in the context of collective investor actions. The provision for collective or representative actions has expanded in a number of other contexts as well, including in particular in the consumer context. On April 11, 2018, the European Commission introduced a proposal – as part of what it called a “New Deal for Consumers” – that would introduce a European collective redress right for consumers. This proposed collective action mechanism is subject to a number of procedural protections. Nevertheless, the proposal, if adopted, would represent a significant advance in the development of collective redress mechanisms and rights in Europe. The European Commission’s April 11, 2018 press release about the proposal can be found here. Continue Reading

Sexual Misconduct and D&O Claims

The fallout from the current wave of revelations sexual misconduct involving media figures, politicians, and corporate executives has included, among other things, a rash of D&O claims – including, for example, claims against the boards of 21st Century Fox and Wynn Resorts. An interesting recent scholarly paper takes a detailed look at D&O claims arising out of allegations of sexual misconduct, examines the potential bases of liability, and considers the relative social utility of this kind of litigation, as well as the practical implications for corporate boards and their organizations. The March 22, 2018 paper by Daniel Hemel and Dorothy Lund of the University of Chicago Law School and entitled “Sexual Harassment and Corporate Law” can be found here. The authors summarize their paper in an April 9, 2018 post on the CLS Blue Sky Law Blog (here). Continue Reading

Cryptocurrencies: New Digital Assets, New Legal Issues?

Among the many innovations we have had to confront in a world characterized by rapid technological change is the advent of cryptocurrency, as a social and financial phenomenon. As I have previously noted, the current cryptocurrency craze has also become a legal phenomenon as well, as now nearly a dozen securities class action lawsuits involving cryptocurrency, ICOs, and blockchain technology have been filed just in the last six months or so. The latest of these lawsuits  — one involving allegations relating to an Italian cryptocurrency exchange operator nicknamed “The Bomber” and including investor demands for the court to compel a “rescue fork” — may suggest that in addition to technological change, the advent of cryptocurrency could introduce legal changes as well. Continue Reading

Fewer U.S. Listed Companies – Is That a Problem?

Between 1996 and 2016, the number of U.S. listed companies declined by about 50 percent. There are now fewer U.S. listed companies than there were in 1976. Some observers have raised the alarm about this decline. For example, SEC Chair Jay Clayton in a speech last summer called the decline in the number of U.S. listed companies “a serious issue for our markets and the country.” But before we can decide whether or not the lower number of public companies is a problem, much less what to do about it, we need to take a look at what is happening and why it is happening. A closer look suggests that the situation is more complex than it might appear at first glimpse. Continue Reading

Ranking the Plaintiffs’ Firms by 2017 Shareholder Recoveries

As I have previously noted (for example here), a number of reports have analyzed the 2017 approved securities class action lawsuit settlements in statistical and numeric terms, such as the aggregate, average, and mean settlement amounts. But what do the 2017 securities suit settlements look like when broken down according to the lead plaintiffs’ firm that negotiated the settlement? An April 4, 2018 study from ISS Securities Class Action Services entitled “The Top 50 of 2017” (here) takes a look at this issue and reports some interesting conclusions, discussed below. The organization’s April 4, 2018 press release can be found here. Continue Reading