CEOs risk lawsuits but Trump might make their life easier

New report shows it’s costly at the top but the President-elect might change things

Insurance News

By Will Koblensky

Directors and Officers (D&O) of publicly traded and large private companies could end up facing more class action lawsuits in 2016 than they have since the beginning of the millennium, a report by Allianz Global Corporate & Specialty said.

“There’s no question we have an increase in the federal securities class action filings in 2016 versus, frankly, historical levels,” Allianz’s Regional Head of Liability Laura Coppola said. “We’ve got less publicly traded companies today than we’ve ever had, we see a higher risk of merger objections claims filed in federal court, we’ve seen the emergence of smaller plaintiff firms filing cases…and we’ve seen an influx of non-US based companies bringing (legal) actions.” 

According to Allianz, the management level also faces an activist regulatory environment and Coppola said that activism comes in the form of the US Securities and Exchange Commission’s Chairwoman, Mary Jo White.

White has overseen some of the toughest regulation enforcement of the securities market in US history and Coppola said that’s in response to major industry collapses, in some cases following criminal behaviour, like the 2008 crash and the Enron scandal.
 
Coppola pointed out the election of Donald Trump suggests regulators could become more “benign”, or at least that’s what the market is expecting.

The securities industry has been on its toes, Coppola said, since the Department of Justice’s Yates Memo reaffirmed the federal government’s commitment to pursue individual culpability for D&Os when a publicly traded or large private company got in trouble with the law.

The US Department of Justice charged 200 companies and people with misconduct since 2009.

That includes 89 CEOs, CFOs and other senior officials, the report states.

It’s a trend Coppola said she believes the securities market would like to change as they believe it will under a Trump administration.

But, Coppola said, that change will be more gradual than swift.

Another risk D&Os face is shouldering legal responsibility for cyber-attacks.

However, Coppola said, they have yet to be successfully prosecuted for negligence in relation to a hack.

In March, Home Depot paid its customers $19.5 million to settle a privacy breach suit over a hack the major chain experienced in 2014 – however, it didn’t admit any wrongdoing.

On November 30, a federal judge dismissed a shareholder derivative action law suit, where some investors sued on behalf of all shareholders, alleging officer liability for the breach.

“If you asked any D&O underwriter, will there be accountability and culpability for proper policy and procedures in cyber-exposure, the answer would be overall ‘yes’,” Coppola said. “But we haven’t seen the litigation environment live up to that yet.”

When asked how D&O underwriters assessed risk, Coppola said the amount of court cases and market volatility per industry plays a role.

“We’ve seen some industries suffer more than others (from lawsuits),” Coppola said. “The healthcare industry, specifically the pharmaceutical industry, and any sort of IPO, bio-tech type of entity, we’ve seen a lot more volatility from a litigation standpoint and a stock standpoint.”   


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