As readers know, one aspect of President Trump’s exercise of his presidential powers has been his willingness to grant pardons to certain persons, including even, as it has turned out, corporations. In the following guest post, Sarah Abrams, Head of Claims Baleen Specialty, a division of Bowhead Specialty, takes a look at the possible D&O insurance implications for a policyholder that has been convicted of a crime but granted a pardon. I would like to thank Sarah for her willingness to allow me to publish her article as a guest post on this site. I welcome guest post submissions from responsible authors on topics of interest to this site’s readers. Please contact me directly if you would like to submit a guest post. Here is Sarah’s article.
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Whether or not a corporation could receive a presidential pardon was unclear until President Donald Trump issued pardons to HDR Global Limited Trading Group, also known as 100x group, the cryptocurrency exchange and derivative trading firm BitMEX, and online news and entertainment platform Ozy Meda, Inc. *Whether or not President Trump’s pardons of BitMEX and Ozy Media, Inc. are legitimate, the pardons, like many executive orders, have been issued and may become an issue for the courts.
The following examines the potential impact of presidential pardons of corporations on D&O insurers.
First, the following is a brief history of the Justice Department (DOJ) cases brought against the two companies pardoned by President Trump. And yes, corporations can be charged with a crime.
HDR Global Trading Ltd., also known as BitMEX, has faced legal action for violating U.S. anti-money laundering laws. The company was fined $100 million for failing to implement adequate AML (Anti-Money Laundering) and KYC (Know Your Customer) programs. In July 2024, BitMEX itself pleaded guilty to violating the BSA and was sentenced to two years of probation. The company was fined $100 million.
Ozy Media and its founder, Carlos Watson, were convicted by a Brooklyn, New York jury of securities fraud, conspiracy to commit fraud, and aggravated identity theft. The company was accused of deceiving investors and lenders by inflating revenue figures, fabricating contracts, and using false representations to attract investments. Following the conviction, Watson was sentenced to 10 years in prison. Ozy Media, the company itself, was sentenced to one year of probation.
Both BitMEX and Ozy Media received final guilty adjudications, with sentencing applied.
Next, it is helpful to understand the extent to which criminal cases brought against corporations may be covered under D&O insurance.
As readers of the D&O Diary may know, the definition of Claim in D&O policies often includes “criminal prosecution” or “criminal proceedings.” D&O insurance policies with this Claim trigger also tend to have a “Willful Misconduct Exclusion,” which precludes coverage for criminal acts, fraud, or intentional misconduct, only after a final adjudication establishing such conduct. Thus, defense expenses up to the adjudication may fall within the policy cover.
Most D&O policies also include severability clauses, which protect innocent insureds from losing coverage just because one executive or the insured entity committed a crime. If defense costs are advanced and a conviction of an insured later triggers the “Willful Misconduct Exclusion,” the insurer may, depending on the policy language, seek a claw back of defense expenses paid.
So, what happens if a D&O carrier sought and was granted reimbursement of defense costs after an insured was convicted and then later pardoned? Familiarity with what a Presidential Pardon is, or has been historically, may be informative in determining prospective D&O policy exposure.
There are no limits to how many people the President may pardon. The U.S. Constitution grants the President the power to issue pardons for offenses against the United States, except in cases of impeachment. A pardon nullifies the punishment or legal consequences of a crime, but it does not erase the fact of the crime itself. Thus, while a pardon may relieve an individual from the legal penalties associated with a crime, it may not change the historical fact that the crime was committed.
The Supreme Court has made clear that, subject to the exception for impeachment, the president’s power to grant pardons is “unlimited,” with virtually no oversight or limiting role for Congress. A couple of state Supreme Courts have ruled on the legal impact of gubernatorial pardons, which may provide context for determining whether a “final adjudication” remains once a pardon has been issued.
The Supreme Court of Kentucky held that a gubernatorial pardon does not prevent a grand jury from continuing its investigation into the pardoned offenses, although any indictments issued for pardoned conduct would be dismissed. In sum, the wrongdoing can still be considered by triers of fact and not entirely vitiated.
The Supreme Court of Florida determined that a full gubernatorial pardon does not entitle an individual to expungement of their criminal records. The court held that while a pardon removes legal punishment and restores civil rights, it does not eliminate the historical fact of the conviction. Similarly, the wrongful misconduct still exists, despite the pardon.
Both of the above Supreme Courts’ holdings align with the principle that a pardon does not erase the fact of the crime, which may support D&O insurers retaining rights to clawed back expenses paid on behalf of an insured corporation during the pendency of a criminal case. A Delaware Chancery Court case brought in the wake of President Trump’s first term in office specifically addressed this issue and denied counterclaims by a pardoned ex-CEO for reimbursement of covered defense expenses up to his conviction.
The case, initially filed against InterMune CEO W. Scott Harkonen, sought repayment of nearly $6 million in legal fees covered by InterMune and its insurers. Dr. Harkonen had issued a misleading press release in 2002 about an InterMune drug’s effectiveness, leading to a federal investigation and a wire fraud conviction in 2009. The fraud charge carried the potential for 20 years of imprisonment, a $250,000 fine and three years of supervised release. On January 19, 2021, then-President Trump granted Dr. Harkonen’s pardon application.
In light of the wire fraud conviction, two of the Company’s excess D&O insurance providers demanded, in arbitration, that InterMune and Dr. Harkonen repay the sums advanced to Dr. Harkonen to litigate the wire fraud charge. In 2019, InterMune and Dr. Harkonen settled with the two insurers. InterMune paid the settlements in full and retained its right to sue Dr. Harkonen for recovery.
Delaware Chancery Vice Chancellor Nathan A. Cook agreed with InterMune’s arguments that the presidential pardon did not change Dr. Harkonen’s conviction and that he was not entitled to indemnification. The court also ruled Dr. Harkonen could not require InterMune or a subsequent acquiring company to indemnify him for his post-conviction attempt to be repaid “for all costs, expenses and fees incurred relating to his criminal conviction and subsequent proceedings.”
Importantly, the state Supreme Court and Delaware Chancery cases discussed above involved the pardoning of individuals. To pardon a corporation is new. However, the above precedent tends to indicate that a pardon may nullify the legal consequences of a crime, but it does not erase the fact that the crime occurred.
Given the increasing popularity of pardons being issued by administrations, specifically addressing the possibility of a pardon in a D&O policy endorsement may be warranted to avoid protracted coverage litigation over expense reimbursement.
The views expressed in this article are exclusively those of the author, and all of the content in this article has been created solely in the author’s individual capacity. This article is not affiliated with her company, colleagues, or clients. The information contained in this article is provided for informational purposes only, and should not be construed as legal advice on any subject matter.