One of the now-standard storylines about the global financial crisis is that despite all the chaos very few corporate executives were prosecuted and even fewer went to jail. However, rather than interpreting these circumstances to suggest that there was insufficient evidence to convict corporate executives beyond a reasonable doubt, some observers have decided that the problem was that there is something wrong with our criminal justice system.

 

One observer who has made a hobby horse out of these issues is the U.S. Senator and Presidential Candidate, Elizabeth Warren. Senator Warren has now introduced new legislation that would lower the standard of criminal liability for corporate executive. Among other things, the new legislation would make corporate executives criminally liable for mere negligence in certain circumstances, even in the absence of the degree of intent that has for centuries been viewed in our legal system as the indispensable basis for a criminal conviction. As discussed below, this legislation is not only a bad idea in terms of our country’s corporate competitiveness, it also threatens one of our legal system’s bedrock principles. Continue Reading Senator Warren’s Proposed Executive Liability Legislation is Contrary to Legal Traditions

In a terse, unsigned one-sentence April 23, 2019 per curiam opinion, the U.S. States Supreme Court has just one week after oral argument dismissed the grant of certiorari in the case of Emulex Corporation v. Verjabedian as “improvidently granted.” The Court had granted cert in the case in order to address a circuit split on the question of whether or not a claimant in must plead scienter in order to establish a tender offer misrepresentation claim under Section 14(e) of the Securities Exchange Act of 1934, or whether allegations of negligence are sufficient. In the merits briefing and at oral argument, the question arose whether or not there is even a private right of action under Section 14(e) at all. As discussed below, the Court’s dismissal leaves all of these questions unaddressed.  The April 23, 2019 opinion in the case can be found here. Continue Reading Supreme Court Punts on Tender Offer Pleading Standard Case

The number of workplace discrimination charges filed with the U.S. Equal Employment Opportunity Commission during Fiscal Year 2018 (which ended September 30, 2018) declined to the lowest level since FY 2006, according the EEOC’s recent statistical release. But while the  number of charges overall are down, the number of sexual harassment charges increased, as did the number of sexual harassment lawsuits the agency filed. The increase in sexual harassment actions seems to suggest a greater awareness of these issues in the wake of the #MeToo movement. The EEOC’s enforcement and litigation statistics can be found here. The EEOC’s April 10, 2019 press release about the 2018 FY statistics can be found here. Continue Reading EEOC Charges Overall Down, But Sexual Harassment Charges Increased

A federal district court has held that because of an insured company’s application misrepresentation about possible M&A activity, a D&O insurance policy’s Warranty Exclusion precludes coverage for the policyholder’s costs incurred in defending claims arising out of the insured company’s acquisition. The court’s opinion raises interesting questions about how the meaning of application questions is to be determined. Central District of California Judge Phillip Gutierrez’s February 4, 2019 opinion in the case can be found here. An April 15, 2019 post on the Wiley Rein law firm’s Executive Summary Blog can be found here. Continue Reading D&O Insurance: Warranty Exclusion Precludes Coverage Due to Application Misrepresentation

On March 28, 2019, amidst much fanfare, the rideshare company Lyft went public at $72 a share, raising more than $2.2 billion.  In the first trading day following the offering, the company’s share price rose 8.7 percent. However, despite the initial euphoria, Lyft’s share price then began to slump. Lyft shares closed at $58.36 on Thursday afternoon (April 18), representing a decline of nearly 20% from the company’s IPO share price. Apparently, at least one investor who purchased shares is fighting mad about the decline. On April 16, 2019 – just 13 trading days after the IPO– the shareholder filed a securities class action lawsuit against the company in California state court. A copy of the plaintiff’s complaint can be found here. An April 17, 2019 Bloomberg article about the lawsuit can be found here. Continue Reading Well, That Didn’t Take Long: Lyft Hit with IPO-Related Securities Suit

Driven by a general overall increase in the number of securities class action lawsuit filings, as well as by an increase in the number of M&A-related lawsuits involving accounting allegations, the total number of securities class action lawsuits involving accounting allegations filed in 2018 was well above historical levels, according to a newly released Cornerstone Research report. Also consistent with overall securities suit settlement patterns during the year, the value of settlements of securities suits with accounting allegations during 2018 was at second-highest level in in the last ten years.  The Cornerstone Research report, entitled “Accounting Class Action Filings and Settlements: 2018 Review and Analysis,” can be found here. Cornerstone Research’s April 17, 2019 press release about the report can be found here. Continue Reading Cornerstone Research: Accounting-Related Securities Suit Filings and Settlements Increased in 2018

Theoretically, claims made insurance coverage applies to claims made during the policy period regardless of when the underlying acts took place. The claims made arrangement contrasts with the framework under an occurrence policy, where coverage applies according to when the underlying acts took place, regardless of when the claim is made. But even though claims made coverage is intended to apply to claims made during the policy period, there are sometimes claims made policy provisions that can preclude coverage for some or all of the past acts alleged. These coverage limiting provisions can under certain circumstances substantially limit the past acts coverage available under a claims made policy. Continue Reading Coverage Complications for Prior Acts Under Claims Made Insurance Policies

It is a point I have made before but it is worth saying again – private companies are not immune from scrutiny under the federal securities laws. In a series of recent enforcement actions – most notably the SEC’s March 2018 enforcement action against Theranos and two of its executives – the SEC has made of point of emphasizing that its regulatory reach extends to private companies. Last week, the SEC announced the resolution of another enforcement action against private company executives. The latest action, involving a failed Silicon Valley start-up, underscores the SEC’s readiness to pursue securities law violations by private company executives. Continue Reading Say It Again: Private Companies Are Subject to the Federal Securities Laws

As I noted in one of the posts in my Nuts and Bolts series about the basics of D&O insurance, the typical D&O insurance policy includes not only obligations for the insurer, but also obligations on the part policyholder as well. Among these policyholder obligations is the duty to cooperate. In most claims, the cooperation duty is not an issue, as the insurer’s requirements and the policyholder’s responses do not lead to conflicts. Unfortunately, from time to time conflicts do arise with regard to the policyholder’s cooperation duty.

 

In a recent insurance dispute involving the cooperation duties under a CGL policy, the Fifth Circuit held that the cooperation requirements the insurer sought to impose on the policyholder exceeded the policy’s requirements. The decision raises a number of important implications about the cooperation requirement – and about its limits. The Fifth Circuit’s February 26, 2019 opinion in Mid-Continent Casualty Company v. Petroleum Solutions, Inc. can be found here. The Barnes & Thornburg law firm’s April 8, 2019 memo about the decision can be found here. Continue Reading Insurance Coverage: Thinking about the Duty to Cooperate

In the following guest post, Deepshikha Dutt, Douglas B.B. Stewart,of and Frank E.P. Bowman of the Dentons law firm review and analyze a recent decision of the Ontario Superior Court of Justice relating to the liabilities of directors and officers under Ontario statutory law for misrepresentations in offering statements. This article is republished here with permission from Dentons. I would like to thank Deepshikha, Douglas, and Frank for allowing me to publish their article here. 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 an article. Here is Deepshikha,  Douglas, and Frank’s article. Continue Reading Guest Post: Court Dismisses Statutory Misrepresentation Claim against Credit Union Board in Landmark Decision