Due to the financial fallout from the COVID-19 pandemic, the number of U.S. bankruptcy filings by companies with over $100 million in assets was 84 percent higher during the first three quarters of 2020 compared to the same period last year, according to a new report from Cornerstone Research. The report, entitled “Trends in Large Corporate Bankruptcy and Financial Distress: 2005-Q3 2020” (here), shows that the increase in the number of bankruptcies was particularly pronounced for “mega bankruptcies” (involving companies with over $1 billion in reported assets). However, the report also suggests that the number of bankruptcy filings by companies with over $100 million in assets may have peaked in July. Cornerstone Research’s October 28, 2020 press release about the report can be found here.
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Rare Australia Securities Class Action Trial Results in First-Ever Defense Verdict
Securities litigation observers know that class action securities lawsuit in the U.S. rarely go to trial. The same is true in Australia as well. However, in a recent ruling in only the second-ever securities lawsuit to go to trial in Australia, a Federal Court Justice has ruled in favor of the defendant company, the first ever trial verdict won by a defendant in Australia. The recent ruling has a number of interesting and important implications, as discussed below.
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Title Insurance Company Hit with Cybersecurity Incident-Related Securities Suit
When the news circulated in February that the Equifax data breach securities lawsuit had settled for $149 million, I wondered whether the sizeable settlement might further encourage plaintiffs’ lawyers to file more securities suits against companies that had experienced cybersecurity incidents. As it has turned out, there have been no new cybersecurity incident-related securities suits filed since then – until now. Earlier this week, a plaintiff shareholder filed a securities suit against title insurance and insurance services company First American Financial Corp., which experienced a significant cybersecurity incident in May 2019. As discussed below, the filing of this complaint is noteworthy in several respects. A copy of the complaint in the recently filed First American securities lawsuit can be found here.
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Delaware Supreme Court: Appraisal Action Not a “Securities Claim” and Therefore Not Covered by D&O Insurance
In a closely watched insurance coverage dispute, the Delaware Supreme Court reversed a lower court rulings and held that an appraisal proceeding is not a “Securities Claim” within the meaning of the defendant company’s D&O insurance policy and therefore that the proceeding is not a covered claim under the policy. Because it ruled there is no coverage, the Court did not address the other more controversial aspects of the lower court’s ruling. The Supreme Court’s October 23, 2020 opinion in In re Solera Insurance Coverage Appeals can be found here.
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Guest Post: OFAC Warns Against Paying Cyber Ransoms to Sanctioned Entities
Ransomware attacks are on the increase, putting the target organizations in the uncomfortable position of having to decide whether or not to pay the demanded ransom. As if that were not tough enough, an October 1, 2020 advisory statement by the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) warns that companies paying ransoms under these circumstances may risk violating OFAC regulations and could be subject to penalties. In the following guest post, Bill Boeck takes a look at the OFAC advisory and its implications. Bill is Lockton’s Global Cyber Product and Claims leader and U.S. Financial Lines Claims Practice Leader. A version of this article previously was published as a Lockton client alert. I would like to thank Bill for allowing 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 Bill’s article.
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Unsponsored ADR Investors’ Securities Suit Dismissed on Forum Non Conveniens Grounds
I know from conversations with D&O insurance professionals outside the United States that they find it somewhere between astounding and incomprehensible that a company whose unsponsored level 1 ADRs trade over-the-counter in the U.S. can be subject to a U.S. securities lawsuit – but, as discussed in prior posts (here and here), that is what the Ninth Circuit and District Court held in the Toshiba securities lawsuit. However, a recent ruling in a securities suit involving global mining company Glencore plc suggests a means by which non-U.S. companies with unsponsored Level I ADRs in the U.S. nevertheless may still be able to avoid litigation in the U.S. In a July 31, 2020 ruling, District of New Jersey Judge Susan Wigenton granted the company’s motion to dismiss ADR investors’ securities suit against the company on forum non conveniens grounds.
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Guest Post: Attribution on Election Cyber-Attacks: Don’t Rush to Judgment
Along with all of the other anxieties about the upcoming Presidential election, there is the concern that someone, somewhere will use some type of cyberattack to interfere with the electoral process. If that were to happen, the immediate question will “Who did it?” 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, underscores the difficulties associated with identifying the actors behind any cyberattack and cautions against jumping to conclusions about who might have been involved. A version of this article previously was published on Cybersecurity Docket. I would like to thank John for allowing 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 article.
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Progress Report on California Public Company Board Gender Diversity Requirements
In 2018, California passed a law mandating gender diversity on the boards of directors of companies headquartered in California. The legislation known as SB 826 served as the model for the separate board racial diversity legislation that California Governor Gavin Newsom signed into law at the end of September. The California Partners Project, a group co-founded by California First Lady Jennifer Siebel Newsom, recently published its first progress report on the growth in women’s representation on corporate boards for publicly traded companies headquartered in California since the enactment of SB 826. As the report shows, there has been a significant increase in the number of women on the boards of California headquartered companies. A copy of the report can be found here. An October 15, 2020 post on the Cooley law firm’s PubCo blog about the report can be found here.
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Financial Scandals Involve Ernst & Young Audit Clients
Two of the biggest corporate scandals this year involved German payments company Wirecard AG and Chinese retail coffee company Luckin Coffee. These two companies have one other thing in common beyond their recent involvement in high profile accounting scandals – it turns out that both companies’ auditor was Ernst & Young, as was the case with several other companies involved in recent scandals. As discussed in an October 17, 2020 Wall Street Journal article entitled “String of Companies That Imploded Have Something in Common: Ernst & Young Audited Them” (here), a number of EY audit clients have faced financial issues in recent months, raising questions whether there is something about EY’s audit approach that contributed to the problems or allowed the problems to happen.
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Guest Post: Corporate Governance Tales from (Virtual) Open Door Encounters – Part 2
After many decades of law practice, legal veteran Richard M. Leisner, a Senior Member in the Trenam law firm in Tampa, found that increasingly he has been called upon to be a sounding board and resource on proposed corporate transactions. In the following guest post, which is the second installment in a three-part series, Richie recounts a number of “open door encounters” – that is, occasions when colleagues came to his office to discuss pending matters. There are a number of important lessons from the tales described below. A version of this article previously was published in Trenam Law News & Insights, available at www.trenam.com. I would like to thank Richie for allowing 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 Richie’s article.
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