The IPO market has been in the doldrums since 2021, but there are promising signs that IPO activity could be on the rebound in 2024. Given the potential for the return of significant IPO activity, it is worth noting that IPO transactions entail certain risks, including in particular for the IPO companies’ private equity backers, as discussed in the following guest post written by Michelle Grimaldi, Assistant Vice President, Claims, Fair American Insurance and Reinsurance Company; Elan Kandel, Member, Bailey Cavalieri LLC; and James Talbert, Associate, Bailey Cavalieri LLC. 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.


IPO activity reached a fever pitch in 2021 but slowed dramatically in 2022 and 2023. Yet, a growing chorus of capital markets and private equity experts is now predicting a resurgence of IPOs, and particularly private equity-backed IPOs. Indeed, according to EY’s newly released “Global IPO Trends Q1 2024” report, approximately ten private equity-backed IPOs came to market in Q1 2024, five of which were among the top ten global IPOs. [1] Additionally, the median deal size of private equity-backed IPOs in 2024 surpassed those listed in the same period last year by 26%.[2] This is good news for private funds and their limited partners because high interest rates and market instability have curtailed favorable exit opportunities in recent months, and a rebound in the IPO market would release some of that pent-up pressure to return cash to investors. [3]

IPOs carry risks, however, and the specter of securities litigation is chief among them. This is particularly true when a company’s share price goes “underwater” shortly after public offering. In these circumstances, the plaintiffs’ securities bar tends to scour the issuer’s public statements for potential misrepresentations that could provide a basis for a securities class action.

The risk of IPO-related litigation is not limited to the issuing company either.  In connection with private equity-backed public offerings, the sponsoring firm and its principals and affiliated funds are routinely named as defendants in such lawsuits—both as primary actors under Section (10)(b) of the Securities and Exchange Act of 1934 and as controlling persons under Section 15 of the Securities Act of 1933 and Section 20(a) of the Exchange Act. Sponsor-appointed directors who serve on the issuer’s board may also be named as primary actors as well as control persons.

Securities litigation presents complex coverage issues for the insurers of private equity firms and their policyholders. Accordingly, this article provides a primer on the principal federal securities statutes implicated in the IPO context and explores several recurring insurance coverage issues that regularly arise in connection with the typical “stock drop” suits that often trail disappointing public offerings.  

Overview of Principal IPO Securities Laws In Relation to Private Equity Sponsors

Section 10(b) of the Exchange Act is the law’s general anti-fraud provision and assigns liability to the “maker” of materially misleading statements or omissions in connection with the purchase or sale of a security. To succeed on a Section 10(b) claim, a plaintiff must establish that the defendant: (1) made a false statement or omission of material fact; (2) with scienter; (3) in connection with the purchase or sale of a security; (4) upon which the plaintiff justifiably relied; and which (5) proximately caused the plaintiff’s economic loss. [4]

Sections 11 and 12 of the Securities Act impose strict liability for material misstatements contained in registered securities offerings. [5] More specifically, Section 11 of the Securities Act prohibits misstatements in registration statements for public offerings and imposes strict liability on the issuer of the publicly offered securities, the signatories to the registration statement, the issuer’s underwriters, and certain other specifically enumerated persons. Section 12(a)(2) of the Securities Act makes it unlawful for any person who offers or sells a security through a prospectus or an oral communication containing a misstatement. A plaintiff does not need to allege reliance, scienter nor loss causation to succeed on a Section 11 claim or a Section 12(a)(2) claim.

Private equity firms and their sponsored funds are not signatories to a portfolio company’s registration statements or prospectuses. Thus, generally speaking, it is difficult for investor plaintiffs to establish primary liability against a private equity firm and its sponsored funds under Sections 11 or 12 of the Securities Act in connection with a portfolio company’s IPO. With respect to Section 10(b) of the Exchange Act, it is certainly possible for plaintiffs to establish primary liability on the part of a private equity firm and its sponsored funds based on statements in a prospectus or registration statement, but plaintiffs would have to establish that the private equity defendants had “ultimate control” over the content of the alleged misstatement or played an affirmative role in disseminating such statements despite being aware of their falsity. [6]

More commonly, Plaintiffs elect to pursue secondary liability claims under Section 15 of the Securities Act and Section 20(a) of the Exchange Act against private equity firms and their related funds. Section 20(a) and Section 15 are parallel provisions that “set out ‘control person’ liability—providing a vehicle to hold one defendant vicariously liable for the securities violations committed by another.” [7] Specifically, Section 20(a) imposes vicarious liability on “controlling persons” for primary violations of Sections 10(b) by the persons they control, and Section 15 does the same for primary violations of Sections 11 and 12(a) of the Securities Act.

Recently, securities plaintiffs have been able to survive motions to dismiss where the allegations in the complaint relating to control are often no more than general recitals of the traditional private equity investment model. For example, in In re GoHealth, Inc. Sec. Litig., plaintiffs asserted Section 15 secondary liability claims against the private equity firms that collectively owned a controlling interest in the issuer. [8] In view of Plaintiffs’ allegation that the private equity firm “possessed actual control over [the issuer’s] operations,” including the ability to unilaterally authorize acts requiring stockholder approval and appoint members of the Company’s board who are be affiliated with the private equity sponsor, the court denied the private equity firm’s motion to dismiss, finding that the complaint made a plausible claim that the private equity sponsor is vicariously liable for the alleged misleading statements in GoHealth’s registration statement.

Similarly, in Allison v. Oak St. Health, Inc., the court denied two private equity firms’ motion to dismiss a cause of action under Section 15 on grounds that the “private equity defendants’ stock ownership and control of Oak Street’s board provide them with ‘significant influence with respect to [Oak Street]’s management, business plans and policies.’” The court recognized that, ordinarily, “determinations of whether an individual defendant is a ‘controlling person’ under [sections 20(a) or Section 15] is a question of fact that cannot be determined at the pleading stage.” The court further recognized that, even assuming Rule 9(b)’s heightened pleading standard applies to the control person claim under Section 20A, the indicia of control alleged in the complaint (i.e., significant ownership stake in the issuer and corresponding influence on the board) satisfied that standard. [9]

The GoHealth and Oak Street rulings enabled the plaintiffs to move past the pleading stage, which is a very significant milestone in the securities class action context. Among other things, the automatic stay imposed under Private Securities Litigation Reform Act (“PSLRA”) lifts following denial of a motion to dismiss and discovery can then commence. For this and other reasons, once a motion to dismiss is denied, desire to stem defense costs coupled with inherent risk and uncertainty in securities litigation generally leads to pre-trial settlements. [10]

Insurance Coverage Considerations

As a threshold matter, private equity firms and other investment funds (REITs, venture capital firms, hedge funds, etc.) ordinarily have coverage under general partnership liability (GPL) policies, which are tailored to their corporate structure and business model. Most GPL policies provide director and officer liability coverage (with full entity coverage) and errors and omissions coverage to the private equity firm, its affiliated funds and special purpose vehicles, and their principals. GPL policies also afford coverage to the individuals appointed by the private equity firm to serve as directors and officers of a portfolio company, though this so-called “outside director” coverage (ODL) is ordinarily provided on a “double excess” basis (i.e., excess of any indemnification and insurance provided by the portfolio company).

  1. Loss

Coverage disputes involving Sections 11, 12, and 15 of the Securities Act often center on whether Plaintiffs’ claimed damages are insurable “loss,” as opposed to disgorgement of ill-gotten gains. Relying on cases such as Level 3 Communications Inc. v. Fed. Ins. Co., and Conseco, Inc. v. National Union Fire Ins Co., insurance carriers have denied coverage for amounts sought under Sections 11 12 and 15 on grounds that those sums represent the return of unlawful gains (i.e., repayment of the amount representing the artificial increase in the value of the issuer’s share price due to Defendants’ false statements). [11]

As a result, many policy forms have been drafted to define “Loss” to explicitly include “amounts incurred attributable to actual or alleged violations of Sections 11, 12 or 15 of the Securities Act of 1933 and plaintiffs’ attorneys’ fees and costs included in the settlement or judgment.” This addition will generally foreclose an argument that such liability falls outside the core definition of “Loss.” Nevertheless, depending on the applicable choice of law, insurers may still have grounds to deny coverage for return of unlawful gains under Sections 11, 12, and 15 on the basis that such sums are uninsurable as a matter of public policy, which can override express policy language.

B. Capacity and Allocation Considerations

GPL Policies typically afford: (1) primary coverage in connection with claims that name the sponsor or the sponsor’s individual partners or officers in their capacity as such, and (2) “double excess” coverage for the sponsor’s individual partners or officers who are named in their capacity as officers or directors of a portfolio company.

In the context of post-IPO securities litigation, insured persons of a private equity firm will often be named in their “outside” capacity, as directors or officers of the portfolio company that underwent an IPO. Securities plaintiffs often name the private equity firm as a defendant as well, particularly if it owned a majority stake, or something approaching a majority, of the issuer in the leadup to the IPO. In these cases, the insured person defendants might have worn multiple hats—serving as directors, officers, or shareholders of a portfolio company while also acting in their capacity as a principal of the private equity firm. This dynamic often gives rise to allocation issues between the portfolio company’s insurance tower and the private equity firm’s tower.


If the volume of private equity-backed IPOs continues to tick up in 2024, as is expected, there may be a lagging rise in IPO-related federal securities litigation. In anticipation, private equity firms and their insurers should closely review policy wording to assess coverage for the risks and exposures associated with IPO-related securities litigation.

The opinions expressed in this article are solely those of the authors and not those of Bailey Cavalieri LLC or Fair American Insurance and Reinsurance Company or any of its parent companies or affiliates. In addition, nothing in this article is meant to influence, convey, or imply a coverage position by any insurance carrier on any past, current, or future claim. The information in this article should not be interpreted to imply that all exposures, hazards, or loss potentials, on any subject or issue were identified or considered. This article also does not constitute or provide legal advice.


[1] Ernst & Young Global Ltd., EY Global IPO Trends Q1 2024 Report, 10 (Mar. 27, 2024), available at

[2] Id.

[3] See Goldman Sachs, Deal-Making and IPOs Are Poised For a Revival in 2024, (Dec. 8, 2023),  https:‌‌/‌/‌‌‌www.‌‌‌‌‌‌‌‌‌goldman‌; Renaissance Capital, IPO Outlook for 2024,‌‌ https:‌‌//‌‌‌‌‌‌www.‌‌‌‌‌‌‌renaissance‌capital‌.‌‌‌com/‌‌‌‌‌‌review/IPO_‌Outlook_2024.pdf (noting a backlog of IPO candidates, which are poised to go public due to improving market conditions in 2024).

[4] Shash v. Biogen, Inc., 84 F. 4th 1, 11 (1st Cir. 2023); Dura Pharm., Inc. v. Broudo, 161 L. Ed. 2d 577, 125 S. Ct. 1627, 1631 (2005).

[5] NECA-IBEW Health & Welfare Fund v Goldman Sachs & Co., 693 F3d 145, 148 (2d Cir 2012).

[6] See Janus Capital Group, Inc. v. First Derivative Traders, 564 U.S. 135, 142 (2011) (recognizing that, for purposes of Section 10(b), the “maker” of a statement “is the person or entity with ultimate authority over the statement, including its content and whether and how to communicate it”); Lorenzo v. Securities & Exchange Commission, 139 S. Ct. 1094, 1100-01 (2019) (recognizing that “dissemination of false or misleading statements [made by others] with intent to defraud can fall within the scope of [Section 10(b)]”).

[7] Donohoe v. Consol. Operating & Prod. Corp., 30 F.3d 907, 911 (7th Cir. 1994).

[8] In re GoHealth, Inc. Sec. Litig., 2022 U.S. Dist. LEXIS 63104, *3-8 (N.D. Ill. Apr. 5, 2022) (summarizing Plaintiffs’ allegations).

[9] Allison v. Oak St. Health, Inc., 2023 U.S. Dist. LEXIS 22933, *54-55 (N.D. Ill. Feb. 10, 2023).

[10] See Stefan Boettrich & Svetlana Starykh, NERA Economic Consulting, Recent Trends In Securities Class Action Litigation: 2018 Full-Year Review, 19 (2019) (noting that Defendants filed Motions for Summary judgment in just 7.1% of securities class actions in the 2000-2018 period); Cornerstone Research, Securities Class Action Filings: 2020 Year In Review, 11 (2021) (noting that only .4% of federal securities class actions from 1997 to 2020 advanced to trial).

[11] Conseco Inc. v. National Union Fire Ins. Co., No. 49DE130202CP000348, 002 Ind. Cir. LEXIS 1 (Ind. Cir. Dec. 31, 2002). CNL Hotels & Resorts Inc. v. Twin City Fire Ins. Co., 291 F. App’x 220 (11th Cir. 2008); Level 3 Communications Inc. v. Fed. Ins. Co., 272 F.3d 908 (7th Cir. 2001).

[12] See, e.g., St. Paul Fire & Marine Ins. Co. v. Scopia Windmill Fund, LP, 2015 U.S. Dist. LEXIS  123189 (S.D.N.Y. Sept. 9, 2015) (rejecting an insured’s argument that a last-minute revision to a settlement term sheet, which reallocated a settlement payment from uncovered to covered claims, was immune from judicial scrutiny in subsequent coverage litigation).