On October 26, 2022, the SEC adopted final rules implementing the Dodd-Frank Act’s requirement for issuers to recover from current and former executives compensation that was erroneously paid due to an accounting restatement. The final rules require securities exchanges to adopt listing standards that will require listed companies to implement and disclose policies requiring the erroneously paid compensation to be recovered, on a “no fault” basis – that is, without regard to whether any misconduct occurred or whether an executive bears responsibility. The SEC’s Release covers a broad range of topics, including — importantly for readers of this blog — considerations relating to indemnification or insurance for the clawed-back compensation. The SEC’s October 26, 2022 press release about the new rules can be found here. The SEC’s fact sheet about the new rules can be found here. The SEC’s Release document (referred to below as the “Release”) can be found here.
Continue Reading Insurance Implications of the SEC’s New Compensation Clawback Rules
Del. Federal Court Rules in Insurer’s Favor in D&O Insurance Coverage Dispute
A perception has emerged in certain circles that Delaware Superior Court is a favorable forum for D&O insurance policyholder and unfavorable for D&O insurers. However, in a recent decision in a D&O insurance coverage dispute by the federal court in Delaware (as opposed to the state court in Delaware) not only determined that Delaware law applied but also determined that there was no coverage under the applicable policy for the underlying claim. As discussed below, the court’s ruling in the case may suggest that Delaware’s federal court may represent an alternative to Delaware’s state courts for D&O insurers. A copy of the District of Delaware’s May 23, 2022 decision in the Cocrystal case can be found here.
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Thinking About the Wells Fargo Executive Compensation Clawbacks
Wells Fargo’s bogus customer account scandal is back in the news again, most recently because of the bank’s release on Monday of the report of its independent directors’ investigation of the bank’s improper sales practices. The April 10, 2017 report, which the bank posted on its website, makes for some interesting reading. Of particular interest, the report discloses that as result of the independent directors’ investigative findings, the bank has imposed compensation clawbacks on former bank officials in excess of $180 million. The clawbacks, which the bank said in its April 10, 2017 press release are “among the largest in corporate history,” raise a number of interesting issues, as discussed below.
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Cal. Supreme Court: Insurer May Seek to Recover Directly From Independent Counsel Allegedly Excessive or Unreasonable Fees
On August 10, 2015, in an opinion that has already garnered a great deal of attention and commentary, the California Supreme Court ruled that an insurer that funded the payment for its insured of independent counsel (or “Cumis” counsel as independent counsel are known in California) in defense of a claim may seek to recover directly from the independent counsel law firm amounts the insurer paid that the insurer contends were excessive or unreasonable. Though the ruling represents a landmark of sorts, the California Supreme Court’s opinion is much narrower than many commentators have acknowledged, which will limit its applicability in other cases. A copy of the California Supreme Court’s opinion can be found here.
Continue Reading Cal. Supreme Court: Insurer May Seek to Recover Directly From Independent Counsel Allegedly Excessive or Unreasonable Fees
Fourth Circuit: Guilty Pleas Trigger D&O Policy Exclusion and Insurer’s Right to Seek Recoupment of Previously Paid Defense Expenses
It sometimes comes as a surprise to some policyholders that D&O carriers contend that they have the right to try to recover amounts they have paid as defense expenses if it turns out that coverage for a claim is precluded by a policy exclusion. However, an insurer’s right of defense expense recoupment is by now
D&O Insurance: Guilty Pleas Trigger Coverage Exclusions, Entitle Insurer to Recoupment
In a detailed April 23, 2014 opinion (here), Eastern District of Virginia Judge Liam O’Grady, applying Virginia law, held that the guilty pleas of executives of Protection Strategies, Inc. triggered four separate exclusions in the D&O coverage section of PSI’s management liability policy and that the management liability insurer was entitled to
More About the D&O Insurance Implications of the SEC’s New Admissions Wrongdoing Requirements
Numerous questions surround the SEC’s new policy requiring enforcement action defendants in “egregious” cases to admit to wrongdoing in order to settle with the agency, rather than simply agreeing to neither admit nor deny the agency’s allegations. As I discussed in a prior post (here), among the questions is the issue of what
D&O Insurance: Fourth Circuit Affirms That Convicted Exec Must Repay Insurer for Defense Expenses
Lee Farkas, the criminally convicted former Chairman and majority shareholder of the defunct Taylor Bean and Whitaker Mortgage Corporation, must repay the nearly $1 million in defense fees the company’s D&O insurer had advanced on his behalf, according to an April 11, 2013 Fourth Circuit opinion. The terse three-page appellate opinion adopts the ruling of
Gupta Ordered to Repay Goldman Sachs $6.2 Million for Attorney’s Fees
By the time you read this blog post, you undoubtedly will have seen one of the stories in the mainstream media reporting on the February 25, 2013 decision of Southern District Court Jed Rakoff ordering former Goldman Sachs director Rajat Gupta to repay most of the legal fees the company incurred in connection with the