In the D&O insurance world, private company liabilities, exposures, and insurance are viewed as categorically distinct from public company liabilities, exposures, and insurance. There are completely separate and distinct insurance policy forms for each of the two categories of companies. In this traditional view, one of the key distinctions between two kinds of companies is the potential liability of public companies and their directors and officers under the federal securities laws. However, it has recently become apparent to me that this perceived difference between the two categories of companies may be less distinct than I had perceived. For example, as I noted in a recent post, the SEC has recently made it clear it is watching private companies, and is particularly concerned with so-called “unicorns” (private start-up firms with valuations greater than $1 billion).

This issue of the potential private company liabilities under the federal securities laws came up again for me recently when I read about a petition for a writ of certiorari that a securities claim plaintiff has filed in the U.S. Supreme Court. As discussed in a June 8, 2016 post on Jim Hamilton’s World of Securities Litigation (here), the petition asks the Court to address the question whether a privately held corporation trading in its own stock has an Exchange Act duty to disclose all material information or abstain from trading. As discussed below, the petition and the underlying claim raise important questions about the potential liabilities of private companies under the federal securities laws. The May 31, 2016 cert petition in the case of Fried v. Stiefel Laboratories, Inc. can be found here.
Continue Reading Supreme Court Asked to Clarify Private Company’s Federal Securities Law Stock Purchase Disclosure Duties