In last Thursday’s post, I noted recent case law developments in which federal court breach of the duty of oversight claims against the boards of Wells Fargo and Abbott Laboratories had survived motions to dismiss, at least in part. I also noted that these decisions have important implications for board governance processes and documentation. As I have continued to consider the implications of these recent decisions and other developments concerning the so-called Caremark duties relating to board members’ fiduciary duties of oversight, I developed further thoughts on the steps well-advised boards will want to take to put themselves in a better position to defend themselves against these kinds of claims. I have set out my thought below.
Continue Reading Corporate Governance, Board Risk Management, and Duty to Monitor Case Law DevelopmentsFTC Crackdown Highlights AI-Related Regulatory Risk
Investors and entrepreneurs everywhere are impressed with the potentially transformative promise of artificial intelligence. Unfortunately, AI’s seemingly unlimited promise has also attracted companies and other players who, in order to participate in the current AI wave, overstate their AI capabilities. These kinds of statements have already attracted the attention of plaintiffs’ lawyers and the SEC. Now the Federal Trade Commission (FTC) has gotten into the act. The agency has launched a “crackdown on deceptive AI claims and schemes” called Operation AI Comply. In a September 25, 2024, press release (here), the FTC announced five recent law enforcement actions the agency has launched against “operations that use AI hype or sell AI technology that can be used in deceptive and unfair ways.” The agency’s initiative highlights the regulatory scrutiny companies can face with respect to the AI-related operations and marketing.
Continue Reading FTC Crackdown Highlights AI-Related Regulatory RiskBreach of the Duty of Oversight Claims Against Wells Fargo’s Board Sustained in Part
As I have noted in several recent posts (most recently here), over the last several months Delaware’s Chancery Court has appeared increasingly skeptical of breach of the duty over oversight claims, seemingly underscoring the oft-stated proposition that so-called Caremark claims are among the most difficult to sustain. However, a recent decision out of the Northern District of California, applying Delaware law but arguably ruling contrary to the recent Delaware Chancery Court trends, sustained at least some of the breach of the duty of oversight claims alleged against Wells Fargo board of director in connection with discriminatory lending allegations against the company. As discussed in detail below, the Wells Fargo decision could have interesting implications for the evolving body of duty of oversight case law.
Continue Reading Breach of the Duty of Oversight Claims Against Wells Fargo’s Board Sustained in PartATI Physical Therapy Settles SPAC-Related Litigation for $31 Million
As I have noted in numerous posts on this site (most recently here), SPAC-related litigation has been a significant factor in the overall volume of corporate and securities litigation filings in recent years. But while I have been attentive to noting the lawsuits as they have been filed, it could be argued that I have not been as dutiful in noting how these cases are being resolved. One recent case resolution – the settlement of the various SPAC-related litigation involving ATI Physical Therapy – is particularly interesting. The court recently approved the settlement of these cases for a total of $31 million. As discussed below, there are several interesting features of these settlements. The court’s approval of the settlements is detailed in a September 24, 2024, Law360 article (here).
Continue Reading ATI Physical Therapy Settles SPAC-Related Litigation for $31 MillionSEC Disbands Climate and ESG Task Force
In March 2021, to great fanfare, the SEC announced its formation of a Climate and ESG Task Force to “develop initiatives to proactively identify ESG-related misconduct,” as well as to “coordinate the effective use of Division resources, including through the use of sophisticated data analysis to mine and assess information across registrants, to identify potential violations.” Now, it turns out that, much more quietly, the agency has disbanded the Task Force. As first reported in a September 12, 2024, Bloomberg article (here), the SEC shut down the Task Force “within the past few months.”
Continue Reading SEC Disbands Climate and ESG Task ForceTech Exec Charged with AI-Related Misrepresentations and Fraudulent Revenue Recognition
In recent months, the SEC Chair and other government officials have made it clear that they are closely watching for companies that try to catch the AI wave by making exaggerated or false claims about the AI capabilities of their products or services. In the latest example of the crack down on these kinds of AI-related misrepresentations, both the U.S. Attorney for the Southern District of New York and the SEC have filed charges against the former CEO and Chairman of the tech company Kubient. The government alleges that the executive, Paul Roberts, inflated the company’s revenues and also lied about one of its signature products, an AI-powered tool that was supposed to detect ad fraud in the digital advertising industry. There are some interesting features of the charges against Roberts, as discussed below.
Continue Reading Tech Exec Charged with AI-Related Misrepresentations and Fraudulent Revenue RecognitionGuest Post: SEC Administrative Proceedings After SEC v. Jarkesy
As I noted in a blog post at the time, in June the U.S. Supreme Court entered its opinion in the SEC v. Jerkesy case, striking down the SEC’s use of Administrative Law Judges in civil penalty action. In the following guest post, Gregory Markel, Sarah A. Fedner, and Gershon Akerman of the Seyfarth Shaw law firm take a detailed look at the case and consider its significance and implications. A version of this article previously was published in the Practical Law Forum. I would like to thank the authors for allowing me to publish their article 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 the authors’ article.
Continue Reading Guest Post: SEC Administrative Proceedings After SEC v. JarkesyCt. Court Holds Restitutionary Damages Uninsurable
A frequently recurring D&O insurance coverage question is whether the insurance policy provides insurance against claimed damages that are restitutionary in nature. The argument against coverage is under a public policy principle that the insured persons should not be able to obtain insurance protection against the return of so-called ill-gotten gains. This question was considered again in a recent insurance coverage decision out of a Connecticut trial court. In a decision that apparently is one of first impression in Connecticut, the court held both that the policy’s uninsurability clause and the policy’s personal benefit exclusion precluded coverage for the amount of a stipulated judgment in the underlying action. A copy of the Connecticut court’s August 23, 2024, opinion can be found here.
Continue Reading Ct. Court Holds Restitutionary Damages UninsurableLitigation Funding in the Spotlight
It has been a while since I have had occasion to write about third-partly litigation financing. However, recent developments at the SEC, in which the agency has pursued enforcement actions alleging that various purported vehicles to finance litigation had defrauded prospective investors, have brought litigation funding back onto my radar screen. Once again, as in the past, various groups are sounding alarm bells about third-party litigation funding, as discussed below.
Continue Reading Litigation Funding in the SpotlightParallel Derivative Suits Associated with Higher Securities Suit Settlements
Securities class action litigation observers know that securities suits frequently are accompanied by shareholder derivative lawsuits based on the same essential allegations. A recent report from Cornerstone Research, entitled “Parallel Derivative Action Settlement Outcomes: 2023 Review and Analysis,” takes a look at the settlement patterns for these kinds of parallel derivative suits. As the report shows, in recent years, nearly half of all securities class action lawsuits have been accompanied by a derivative lawsuit, and the securities suits with accompanying derivative suits typically are associated with higher settlements. The Cornerstone Research report can be found here. Hat Tip to the August 26, 2024 Cooley law firm memo about the report, here.
Continue Reading Parallel Derivative Suits Associated with Higher Securities Suit Settlements