Many readers undoubtedly saw the news last week of the enforcement action the SEC filed against Theranos, Inc., its founder, Chairman, and CEO Elizabeth Holmes, and its President and COO Ramesh “Sunny” Balwani. Theranos and Holmes have settled with the agency, although the complaint against Balwani apparently will be going forward. The SEC’s action is interesting at many levels, and it has several important implications that should not be overlooked. The SEC’s March 14, 2018 press release about the charges can be found here. The SEC’s complaint against Thernos and Holmes can be found here. The SEC’s separately complaint against Balwani can be found here.
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Cornerstone Research: Securities Suit Settlement Values Declined “Dramatically” in 2017
Due to the volume of smaller settlements and the absence of any jumbo settlements, the aggregate amount of securities class action lawsuit settlements declined “dramatically” in 2017 compared to the prior year, according to the latest securities suit settlement study from Cornerstone Research. According to the report, which is entitled “Securities Class Action Settlements: 2017 Review and Analysis,” in addition to the decline in the total value of settlements, average and median settlement values all also declined in 2017. The report can be found here. Cornerstone Research’s March 14, 2018 press release about the report can be found here.
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Guest Post: SEC Enforcement Still Strong Under Trump – What’s Next?
In the following guest post, Britt K. Latham and Brian Irving of the Bass, Berry & Sims PLC law firm take a look at the SEC’s enforcement action track record under the Trump administration and take a look ahead at what may be next for the agency. I would like to thank Britt and Brian for their willingness to allow me to publish their article as a guest post. 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 Britt and Brian’s article.
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Guest Post: A Dozen C-Suite Takeaways from the 2018 SEC Cyber-Disclosure Guidance
As I noted in a post at the time, on February 20, 2018, the SEC issued its guidance for cybersecurity-related disclosures. 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, has pulled together of list of 12 takeaways for corporate officials from the SEC’s guidance. 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 article.
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Insurance for Fraudulent Misconduct Does Not Violate Delaware Public Policy
The insurance coverage litigation arising from the settlement of the shareholder claims filed in connection with the Dole Food Company’s November 2013 “going private” transaction continues to grind on. In the latest development in the coverage dispute, a Delaware Superior Court judge has entered a number of interesting rulings, deciding among other things that an underlying determination that an insured committed fraud does not make the claim uninsurable as a matter of Delaware law. Delaware Superior Court Judge Eric Davis’s March 1, 2018 opinion in the Dole Foods coverage litigation can be found here.
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Failure to Maintain Insurance Exclusion Precludes Coverage for Defense Costs Incurred in a Lapsed Life Insurance Dispute
In a recent insurance coverage lawsuit arising out of an underlying dispute over who was responsible for the lapse of a key man life insurance policy, a court determined that coverage for the attorneys’ fees a management consulting firm incurred in defending against the underlying claim was precluded by the failure to maintain insurance exclusion in the consulting firm’s professional liability insurance policy. Because coverage disputes involving a failure to maintain insurance exclusion are relatively rare, the court’s decision provides an opportunity to consider the exclusion and how it might affect the availability of coverage in certain claims situations.
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Yahoo Settles Data Breach-Related Securities Suit for $80 million
The newly disclosed $80 million settlement of the Yahoo data breach-related securities class action lawsuit will not make the list of the Top 100 securities suit settlements, but it is significant in its own way just the same. Because the settlement is the first substantial data breach-related shareholder lawsuit recovery, it represents a milestone development in a number of respects, as discussed below. The parties’ March 2, 2018 Stipulation and Agreement of Settlement can be found here.
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DOJ Targets Private Equity Firm for Portfolio Company’s Alleged Improper Kickbacks
In an unusual and potentially significant move, the U.S. Department of Justice has named as one of the defendants in a False Claims Act lawsuit a private equity firm whose portfolio company the DOJ alleges engaged in an illegal health care-related kickback scheme. As the Jones Day law firm noted in a February 27, 2018 client memo about the DOJ’s action, the inclusion of a PE firm as a defendant in this lawsuit “may indicate a sea change in terms of who the DOJ is willing to pursue in False Claims Act changes” and “could signal the DOJ’s willingness to seek to pierce the corporate veil and hold private equity sponsors accountable for the noncompliance of their portfolio companies in the health care industry.” The DOJ’s February 23, 2018 press release about the lawsuit can be found here. The DOJ’s complaint in intervention in the lawsuit can be found here.
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ISS Releases Updated Top 100 U.S. Securities Suit Settlements List
Prior observers have already noted that in 2017 the value of securities class action lawsuit settlements plunged to lows not seen in years, largely due to from a shortage of large or even moderate settlements. These observations about the lack of larger settlement are underscored by the latest large securities suit settlement report from ISS Securities Class Action Services (ISS). In its annual report, entitled “The Top 100 U.S. Class Action Settlements of All Time (as of December 31, 2017)” (here), ISS reports that only two securities class action lawsuit settlements approved during 2017 were large enough to make the Top 100 list. The report has a number of other interesting observations about securities suit settlements as well.
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Prior Acts Exclusion Does Not Preclude Coverage Where Subsequent Claim Independent from Alleged Prior Acts
In a January 23, 2018 unpublished decision (here), the Eleventh Circuit held that a D&O insurance policy’s prior acts exclusion does not preclude coverage where the subsequent claim against insured persons is “independent” from the alleged wrongful acts that occurred prior to the policy period. The appellate court’s opinion, in which it affirmed a district court’s ruling rejecting a D&O insurer’s argument that the exclusion precluded coverage for the FDIC’s claim against the former directors and officers of a failed bank, underscores the necessity for a link between the prior wrongful acts and the subsequent claim in order for the exclusion to preclude coverage for the claim. The Carlton Fields law firm’s February 26, 2018 memo about the decision can be found here.
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