As readers know, since the beginning the coronavirus outbreak in the U.S., I have been tracking the coronavirus-related D&O lawsuits as they are filed. As the lawsuits have started to accumulate, one challenge has been keeping a firm grasp on what it is that makes a lawsuit coronavirus-related. In the following post, I discuss two recently filed securities class action lawsuits that after some deliberation I have decided to include on the list of coronavirus-related securities suits. Though I have included them on the list, I will be the first to acknowledge that that the inclusion of these lawsuits, particularly the second of the two discussed below, is not beyond question. My hope is that by going through my logic for including the two lawsuits and my reasoning for including them on the list that readers will weigh in and share their thoughts about whether either or both of these lawsuits properly should be classified as coronavirus-related. I describe the two recently-filed lawsuits below, along with a description  of my reasons for including them on the list. Continue Reading Do These Two New Lawsuits Belong on the List of COVID-19-Related Securities Suits? 

David Topol

In its June 2017 decision in Kokesh v. SEC (discussed here), the U.S. Supreme Court held that disgorgement in an SEC enforcement action represents a “penalty,” and therefore a SEC enforcement action claim for disgorgement is subject to a five-year statute of limitation. The Court emphasized that it was only deciding the statute of limitations issue, and was emphatically not reaching the larger issue of whether the SEC has the proper authority to order disgorgement in enforcement proceeding. As discussed here, last November, in the case of Liu v. SEC, the U.S. Supreme Court agreed to take up the  larger issue to determine whether or not the SEC may seek may seek and obtain disgorgement as “equitable relief” for a securities law violation. On June 22, 2020, the Supreme Court issues its opinion in the Liu case. As discussed below in a guest post written by David Topol of the Wiley law firm, the court has ruled that the SEC may collect disgorgements as “equitable relief,” subject to important constraint. I would like to thank David 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 David’s article. Continue Reading Guest Post: Liu v. SEC: What Is “Disgorgement”?

Many traditional liability insurance policies contain provisions specifying that in the event of a claim the insurer has the duty to defend the insured. However, many management liability insurance policies do not impose a duty on the insurer to defend the insured; rather, these policies usually provide that insureds will defend themselves, with the obligation on the insurer to advance defense costs as they are incurred, subject to all of the policy’s terms and conditions. However, because defense obligations under the more traditional duty to defend arrangement are well established and more familiar to many courts, courts sometimes attempt to resolve issues arising under duty to advance policies by referring to principles established with regard to duty to defend policies.

 

In a recent decision, the Ninth Circuit declined to apply duty to defend principles to interpret a D&O insurer’s duty to advance, holding that the insurer’s duty to advance extended only to actually covered claim and not to potentially covered claims as would be the case under a duty to defend policy. The appellate court also affirmed the district court’s rulings with respect to the applicability of the policy’s wage and hour claims exclusion; the policy’s definition of “loss,” precluding coverage for amounts deemed “penalties” in the applicable statute; and the insured vs. insured exclusion. A copy of Ninth Circuit’s June 17, 2020 opinion can be found here. Continue Reading D&O Insurer’s Duty to Advance Defense Costs Applies to Covered Claims, Not Potentially Covered Claims

A plaintiff shareholder has filed a securities class action lawsuit against a diagnostic testing company alleging that the company misrepresented the accuracy of its COVID-19 antibody test. The company’s share price, which had risen on the news of the FDA’s authorization of the company’s test, declined after the FDA announced it was revoking the authorization due to performance concerns with the accuracy of the test. As detailed further below, this new lawsuit is the latest in a series of securities suits that have been filed since the coronavirus outbreak began against companies that are alleged to have made misrepresentations concerning their ability to provide coronavirus-related therapies, testing, or equipment. Continue Reading Investor Files COVID-19 Related Securities Suit Against Testing Company

In a recent decision in an insurance coverage dispute, a federal court applying Puerto Rico law concluded that there was no coverage under a management liability insurance policy for a discrimination claim that had first been made prior to the policy period of the claims made policy at issue, and that notice of the claim was untimely as well. The court’s conclusion is in a sense unremarkable. What is worth considering about the ruling is how often these same problems recur, as discussed below. The District of Puerto Rico’s May 28, 2020 opinion can be found here. A June 17, 2020 post on the Wiley law firm’s Executive Summary Blog about the decision can be found here. Continue Reading No Coverage for Claim First Made Prior to the Policy Period of a Claims Made Policy

John Reed Stark

Is a company’s post-breach forensic report subject to discovery in subsequent breach related litigation? That is the question that John Reed Stark, President of John Reed Stark Consulting and former Chief of the SEC’s Office of Internet Enforcement, examines in the following guest post. A version of this article originally appeared on Securities 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. Continue Reading Guest Post: Data Breach Forensic Reports: Keeping a Grail Document Confidential

In the latest securities class action lawsuit alleging that the defendant company tried to position itself to investors as able to profit from the coronavirus outbreak, a plaintiff shareholder has filed a securities suit against a company that claimed to have developed COVID-19 tests that were 100% accurate. The plaintiff alleges company’s share price soared based on the company’s statements, but later fell when news reports and regulator statements began to circulate casting doubt on the company’s claimed testing accuracy. A copy of the June 15, 2020 complaint filed against Co-Diagnostics, Inc. can be found here. Continue Reading Securities Suit Hits Company that Claimed 100% Accurate COVID-19 Tests

A lot has happened since early March, when I first wrote about the possibility that the coronavirus outbreak could lead to D&O claims. At that time, there were only 43 confirmed cases of COVID-19 in the United States and six deaths. Now, three months later, there have been over 2 million confirmed cases in the U.S. and over 115,000 deaths. Along with the public health crisis, a dramatic business downturn has unfolded over the last three months as well, one that likely will continue to effect the economy for months to come. Among other things, in the wake of these dramatic events, a number of disputes have developed, including litigation affecting corporate directors and officers. In this latest installment in my continuing series of monthly reports about the D&O consequences arising from the coronavirus outbreak, I have provided an overview of the developing claims trends, as well as the impact both the circumstances and the claims trends have had on the D&O insurance marketplace. Continue Reading COVID-19 and D&O Insurance: The Latest Update

The troubled deal in which Advent International Corporation was to acquire cybersecurity firm Forescout Technologies, Inc. is already the subject of litigation pending in Delaware Chancery Court, and indeed a trial in the Delaware merger dispute case is scheduled for July. Now Forescout shareholders have filed a separate securities lawsuit, alleging that between the time the deal was announced in February 2020 and the time that Forescout announced in May 2020 that Advent had advised Forescout that Advent would not “consummate” the acquisition, Forescout made a series of misrepresentations about the company’s financial condition and performance. Among other things, the investors allege that Forescout misrepresented or omitted to disclose the impact that the COVID-19 outbreak was having on its financial performance.  A copy of the plaintiffs’ June 10, 2020 complaint can be found here. Continue Reading Securities Suit Alleges Cybersecurity Company Misrepresented COVID-19 Impact

In prior enforcement actions the agency filed in the wake of the coronavirus outbreak, the SEC has made it clear that it intends to target companies and individuals that are seeking to secure gains by misrepresenting to investors the companies’ ability to profit from the pandemic. On June 9, 2020, the SEC filed what is the latest of these pandemic-related enforcement actions. In its complaint, the agency alleges that a penny stock trader engaged in a fraudulent pump-and-dump scheme involving the stock of a biotechnology company. The SEC alleges he drove the company’s share price by making hundreds of false statements about the company in an online forum, and then after the company’s share price rose, he sold his stock for significant profits. Continue Reading SEC Files Enforcement Action Based on Alleged COVID-19 Pump-and-Dump Scheme