Federal Clawback Claims
It perhaps goes without saying that the financial crisis of 2008 has altered the corporate landscape. The American public is outraged at the super-sized compensation of the executives at the heart of the financial crisis, some of whose firms received government support to help weather the storm. Among the myriad consequences of the crisis is a growing body of federal laws that provide for the “clawback” of executive pay. The Emergency Economic Stabilization Act of 2008 and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 each provides that compensation paid to corporate executives may be taken back under certain scenarios. These new laws join the Sarbanes-Oxley Act of 2002 in allowing the clawback of executive compensation. Whether D&O insurance covers such a loss sometimes is not an easy question to answer.
Sarbanes-Oxley Act Section 304. Sarbanes-Oxley was enacted in response a series of corporate scandals, including those involving Enron, Tyco, and WorldCom, caused in part by questionable financial reporting practices. Sarbanes-Oxley was intended to provide higher standards and improved oversight of financial reporting by public companies.
Under section 304 of Sarbanes-Oxley, a chief executive officer (CEO) or chief financial officer (CFO) may be forced to disgorge incentive-based compensation where there has been “misconduct” that results in “material noncompliance of the issuer . . . with any financial reporting requirement under the securities laws. . . .”[2] At least one federal district court has ruled that the clawback provision may be triggered even where the CEO herself is innocent of wrongdoing.[3] The court concluded that “the plain language of the statute indicates that the misconduct of corporate officers, agents or employees acting within the scope of their agency or employment is sufficient misconduct to meet this element of the statute.”[4]
If there is a misstatement or error in a financial statement, the clawback from the CEO or CFO can include any incentive compensation paid during the year subsequent to the original financial statement.[5] The potential clawback includes all incentive compensation during that year, not just the incentives proximately resulting from the misstatement. In addition to the clawback of incentive compensation, Sarbanes-Oxley also mandates the reimbursement of any gains that the CEO or CFO realized from the sale of his or her company’s securities during the same one-year period.[6]
Emergency Economic Stabilization Act Section 111(b)(3)(B). The Emergency Economic Stabilization Act requires companies that receive assistance under the Troubled Asset Relief Program (TARP) to maintain certain executive compensation and corporate governance standards.[7] In essence, the act provides for the clawback of bonuses, retention awards, and incentive compensation paid to a TARP-recipient’s senior executive officer and the next 20 most highly compensated employees, if they are paid based on materially inaccurate financial reporting. Unlike the clawback provisions under Sarbanes-Oxley, the Emergency Economic Stabilization Act does not limit its application to cases involving misconduct. The clawback applies to all incentive compensation and is not facially limited to the amounts proximately caused by the financial misstatement. However, once TARP recipients repay their obligations, they are no longer subject to the clawback provisions of the Emergency Economic Stabilization Act.
Dodd-Frank Act Section 954. The Dodd-Frank Act is the newest federal clawback law, enacted in 2010. Under the act, the Securities and Exchange Commission (SEC) is required to ensure that the national security exchanges prohibit the listing of any company unless it adopts a sufficient policy for clawing back “excess” incentive pay.[8] The clawback policies would apply to current and former executive officers.[9] The clawback is required if the company must file a financial restatement under securities laws due to material noncompliance with those laws.[10] The clawback applies to incentive compensation, including stock options awarded during the three-year period before the company is required to prepare an accounting restatement. Clawbacks under section 954 are limited to any incentive compensation that exceeds the amount that would have been paid under the financial restatement.
However, several steps must occur before section 954 of the Dodd-Frank Act can take effect. In order to implement section 954, the SEC must adopt rules; employers must adopt policies for disclosure and clawback of incentive-based compensation based on those rules; and the securities exchanges are required to prohibit the listing of any security of a company that fails to conform with the clawback requirements.[11] As of May 2013, the SEC had not proposed rules for implementing section 954.
Dodd-Frank Act Section 210. By far the most extensive clawback provision is section 210 of the Dodd-Frank Act. While the above-discussed statutes are targeted at misleading financial reporting, section 210 allows the Federal Deposit Insurance Corporation (FDIC) to recover compensation from any senior executive or director deemed to be “substantially responsible” for the failure of a covered financial company.[12] Dodd-Frank allows the FDIC to be appointed receiver for a failing financial institution under certain circumstances.[13] Under section 210, the FDIC may then claw back all compensation received by the senior executive or director during the two years before the FDIC is appointed receiver of the company.[14] The FDIC may also repudiate contracts, including for compensation, that it unilaterally deems to be “burdensome” to the insolvent institution.[15]
In July 2011, the FDIC approved rules for implementing section 210.[16] Under the rules, a negligence standard applies to the FDIC’s determination of whether an executive or director is “substantially responsible” for the company’s failed condition.[17] The inquiry is whether he or she “[f]ailed to conduct his or her responsibilities with the degree of skill and care an ordinarily prudent person in a like position would exercise under similar circumstances.”[18] The burden lies with the executives and directors to demonstrate that they exercised the requisite standard of care or, if unable to do so, to prove that their conduct did not “individually or collectively” result in a loss that materially contributed to the company’s failure.[19]
The rules authorize the FDIC to recoup “any” compensation received by the senior executive or director (current or former) in the past two years, including not only salary and bonuses but also other forms of compensation.[20] In the case of fraud, no time limit applies.[21]
D&O Coverage for Clawbacks
D&O policies cover executives for liability arising from “wrongful acts” committed in their professional capacity—more specifically, that liability which is not already indemnified by the company. “Wrongful acts” as defined in most policies encompasses the various triggers for regulatory clawbacks. Standard language might include “actual or alleged errors, omissions, misleading statements, and neglect or breach of duty on the part of the board of directors.” Nevertheless, D&O policies contain exclusions that could bar indemnification for clawback claims. Common exclusions bar coverage for claims that an insured gained improper “profit, remuneration or advantage” as well as for any fraudulent or dishonest acts or willful violations of law.[22] Insureds may nonetheless be entitled to a defense against clawback claims insofar as the exclusions frequently apply only where a “final adjudication” establishes the exclusions’ application.[23]
There is also a question of whether a claim for the clawback of compensation or bonuses constituted a covered loss triggering D&O coverage. Some courts have held that restitution or disgorgement of “ill-gotten” gains is not a covered loss because the insured was never entitled to, or had wrongly acquired, the claimed funds in the first instance.[24] Similar reasoning could lead a court to hold that compensation clawed back by the government does not constitute a covered loss.
Marsh FDIC Receivership Endorsement. In the spring of 2011, Marsh announced that it had available an endorsement to the Side A coverage of D&O policies that would provide coverage for clawbacks by the FDIC made pursuant to section 210 of the Dodd-Frank Act.[25] The FDIC Receivership Endorsement was specifically designed to insure the risks created under section 210.
The FDIC Receivership Endorsement is intended to provide coverage for the costs and attorney fees incurred by executives during any actions brought by the agency.[26] Under the endorsement, executives can receive unpaid compensation if a contract is repudiated by the government.[27] It also covers FDIC clawbacks of previously paid compensation. The endorsement, however, does not provide coverage for fraud or criminal behavior.
The endorsement also provides for reimbursement of costs incurred in responding to and defending against FDIC receiverships and related enforcement actions. According to Marsh,
the coverage will pay up to the policy’s limit of liability for the following:
Costs and attorneys fees incurred by an executive director in evaluating, responding to, and defending against any subpoena, written request or notice, written demand, complaint, or similar documents received from the FDIC.
Earned salaries, wages, commissions, benefits, and any other compensation either repudiated or “clawed back” by the FDIC from an executive or director.
Damages established by the FDIC due to nonintentional wrongful acts or omissions by the executive or director.[28]
Other insurers have also introduced coverage geared toward liability incurred under Sarbanes-Oxley section 304 and Dodd-Frank.[29]
House Bill 5860. In May 2012, Representative Barney Frank (a Democrat from Massachusetts) sponsored the introduction of House Bill 5860, the Executive Compensation Clawback Full Enforcement Act.[30] The bill proposed banning insurance coverage for clawbacks and other personal liability under the Dodd-Frank Act. [31]
The bill, limited to banks and financial institutions, would have mandated personal liability for directors and officers for regulatory orders “to repay previously earned compensation.” Specifically, the bill stated that an executive “may not, directly or indirectly, insure or hedge against . . . amounts so owed.” Notably, the bill contained carve-outs for compensation recouped at the initiative of the company, as well as business judgment rule protection.[32] In addition, the bill would not have prevented the insurance of defense costs incurred in defending an FDIC investigation.
The bill was proposed in the wake of unpopular executive compensation and bonuses at financial firms, often seen as excessive and unwarranted, while the economy suffered a recession. In his remarks in support of the bill, Frank stated:
The provision of the financial reform bill mandating that compensation systems for financial executives which include bonuses also make possible clawbacks is an important step forward in our efforts to avoid the terrible mistakes of the past. The creation of insurance policies to insulate financial executives from clawbacks is one more effort by some in the industry to perpetuate a lack of accountability.[33]
House Bill 5860 was referred to the House Subcommittee on Financial Institutions and Consumer Credit in May 2012. The bill did not gain significant traction in the House and never made it out of subcommittee. Frank decided not to run for reelection in 2012, and no similar bill has been proposed in the current Congress. Although the bill did not become law, it is possible that future legislation could affect the insurance coverage available for clawbacks.
Public policy issues. The proposed Executive Compensation Clawback Full Enforcement Act is reflective of another potential barrier to coverage for clawback liability—the public policy against insuring wrongdoing. A court could determine that D&O policies do not cover clawbacks based on public policy considerations. Courts could be motivated by the same arguments Frank set forth in favor of House Bill 5860; if new regulation seeks to punish executives for their misdeeds, insurance coverage for such wrongdoing theoretically undermines the law’s intent. Similar reasoning has been embraced by the jurisdictions that find punitive damages to be uninsurable as a matter of public policy. Courts taking this approach have held that insurance coverage frustrates the very purpose of punitive damages, which is to punish the defendant and deter others from engaging in similar conduct.[34]
Similar public policy concerns could apply to preclude insurance coverage for statutory clawbacks, as well as other liability imposed under newly enacted regulatory legislation. Sarbanes-Oxley, the Emergency Economic Stabilization Act, and the Dodd-Frank Act were all enacted to improve the financial oversight of companies and to increase executive accountability for compliance with financial disclosure rules and regulations. The desire for personal accountability could provide a public policy justification strong enough for courts to prohibit insurance coverage for clawback claims.
The Consumer Fraud Protection Bureau. Before we leave the topic of Dodd-Frank and related emerging liability risks, it is worth mentioning the newly minted Consumer Fraud Protection Bureau (CFPB). Title X of Dodd-Frank created the CFPB, endowing the new agency with rule-making authority and the power to investigate and enforce violations.[35] Although the agency officially opened its doors in July 2011, it did not begin enforcement activities until January 2012, after the controversial appointment of Richard Cordray as its director.[36]
The CFPB and its enforcement activities could create additional uncertainty in the D&O insurance market. CFPB investigations might fall within the coverage available under D&O policies.[37] But because the insurance market is not yet developed in this area, insureds need to consider carefully their existing policies and future needs to determine whether current D&O policies will provide coverage for CFPB enforcement activities under existing coverage provisions for regulatory activity.
The JOBS Act
In April 2012, President Obama signed into law House Bill 3860, the Jumpstart Our Business Startups Act (JOBS Act). Under Title III of the JOBS Act, it will become easier for certain companies, including small businesses, to obtain funding by selling equity securities. Section 302 of the JOBS Act exempts from section 4 of the Securities Act of 1933[38] the offer or sale of securities totaling less than $1 million in the preceding 12 months.[39]
In principle, the JOBS Act exemption will reduce reporting requirements for small businesses that decide to raise funds by selling equity interests in a company. These sales tend to be small shares bought by many unsophisticated purchasers, oftentimes through the Internet. The JOBS Act was designed to allow small companies to continue to grow by seeking equity contributions while avoiding undue regulatory burdens that are associated with offering or selling securities. As part of meeting that goal, the JOBS Act allows for the creation and regulation of crowdfunding “portals” that do not need to register with the SEC as a licensed broker-dealer.[40] The crowdfunding portals will still be subject to SEC rules and regulations, however.
The SEC is collecting public comments before publishing proposed rules.[41] The JOBS Act initially gave the SEC 270 days to draft proposed rules(roughly until the end of 2012). But as of early June 2013, the SEC still had not published any proposed rules for Title III of the JOBS Act. In light of the delay in initial publication of proposed rules and the need for time to allow public comment on and agency review of any proposed rules, it is possible that final rules will not be issued until 2014.[42]
Possible claims and D&O insurance coverage issues. The relaxed regulations and the increased ability of small companies to sell equitable shares through crowdfunding under the JOBS Act could lead to increased litigation as the pool of unsophisticated purchasers is likely to increase. In addition, crowdfunding sales will, presumably, tend to encourage investment by many people from diverse geographic areas with limited access to information on the risks of investing. Some commentators who follow capital markets have expressed concerns that crowdfunding will lead to greater opportunity for fraud and abuse, which could outweigh any benefit of the limited regulations under the JOBS Act.[43] The SEC had expressed similar concerns about the JOBS Act and recently filed a civil lawsuit against a company, alleging that it had engaged in securities fraud by telling investors it could raise billions of dollars under the JOBS Act.[44]
The JOBS Act also includes a provision that specifically imposes liability on crowdfunding issuers for material misstatements or omissions in connection with offerings.[45] As a result, the issuer, directors, or officers in such an action brought by a purchaser could be liable for a refund of the amount paid for the securities or for the purchaser’s actual damages resulting from material misstatements or omissions. This express provision allowing for a private cause of action under the JOBS Act could also result in increased claims made against companies or executives involved in crowdfunding.
The impact of crowdfunding claims on D&O insurance coverage remains to be seen. It could be another year or more until the SEC has proposed rules for the JOBS Act. Nevertheless, insurers have already taken positions, with some moving to exclude coverage while others advertise new coverage specifically geared to the risk.[46] Insureds and brokers will likely need to wait for further direction from the SEC and insurers before deciding whether, or to what extent, coverage for such claims will be available.
Recent Litigation and Losses Potentially Affecting D&O Coverage
Recent settlements and litigation have demonstrated the importance of maintaining adequate D&O coverage, simultaneously alerting insurers to the scope of potential liability.
News Corp. settlement. In 2011, News Corporation was at the center of a phone-hacking scandal in Britain. In April 2013, the board of News Corp. settled a derivative lawsuit brought by U.S. shareholders for $139 million. The lawsuit had alleged mishandling of the British phone-hacking scandal and an improper acquisition of a television production company owned by the daughter of Rupert Murdoch, News Corp.’s chairman and CEO.[47] The company’s D&O insurers will be paying the entire amount of the settlement, which the plaintiffs’ lawyers claim is the largest settlement ever reached in a derivative lawsuit. [48]
Facebook IPO. Facebook has dealt with significant legal issues since its initial public offering (IPO) last year. Facebook filed its Form S-1 Registration Statement and draft Prospectus in preparation for its IPO in February 2012.[49] The Registration Statement is a filing required by the SEC for companies planning to offer new securities. The statement must provide information on the value of the securities offered, the company financials, how the proceeds from the securities sale will be used, and a prospectus. Facebook’s initial Registration Statement set the aggregate value of the IPO at $5 billion. But before the IPO on May 18, 2012, the Registration Statement was revised eight times.
On May 7, 2012, the Facebook executives began the IPO “road show,” traveling around the county to make presentations to analysts and potential investors.[50] On May 16, 2012, Facebook filed its final amendment to its Form S-1 Registration Statement, noting that it faced declining advertising revenue as it sought to adapt to increasing mobile use of the social networking site.[51] On May 17, 2012, Facebook set the share price of its initial public offering at $38.00 per share, making the total value of the IPO more than $16 billion.[52] That night, shares were sold to clients of the IPO underwriters. On May 18, 2012, the stock was set to begin trading at 11:00 a.m., but the opening was delayed due to technical problems at NASDAQ, and some orders for shares were not properly processed.[53] Once it opened, the stock initially rose to over $42.00 a share, but at the end of the day, the stock was flat, closing at $38.23 a share.[54]
The next day, on May 19, 2012, allegations that Facebook’s disclosures to investors were deficient began to emerge. Reuters reported that Facebook “altered its guidance for research earnings last week during the road show, a rare and disruptive move.”[55] On May 22, 2012, Reuters revealed that Morgan Stanley, JP Morgan, and Goldman Sachs had cut their earnings forecasts for Facebook before the IPO but had only informed a few of their preferred investor clients of the change.[56] That day, Facebook shares closed at $31.00, an 18.42 percent drop from the IPO price.[57] And by the end of May 2012, shares had closed below $30.00.
In the days and weeks following the Facebook IPO, investors around the country began filing lawsuits against Facebook, its officers and directors, and the IPO underwriters. These lawsuits included claims that the pre-IPO disclosures, including those in the Registration Statement, were inadequate under federal securities law, as well as federal and state claims against NASDAQ and claims against the directors of Facebook.
The first investor lawsuit was filed on May 22, 2012, in Superior Court in San Mateo County, California.[58] The complaint alleged that Facebook violated the securities laws when it failed to make all of the required disclosures in its Registration Statement in violation of sections 11 and 15 of the Securities Act. Specifically, the complaint alleged that Facebook failed to disclose that the lead underwriters for the IPO cut their earnings forecasts during the IPO road show and only disclosed the news to a few select clients. The complaint cited an article published on May 19, 2012, by Henry Blodget, entitled, “If This Really Happened During the Facebook IPO, Buyers Should Be Mad as Hell . . .”.
A separate lawsuit was filed by other investors in the Southern District of New York on May 23, 2012.[59] The federal lawsuit alleged that Facebook and its officers and underwriters failed to disclose that it was experiencing a reduction in growth and that it had told the underwriters to reduce their performance estimates for 2012. The complaint further alleged that the revised performance estimates were shared with only select investors and were not shared in the Registration Statement or the Prospectus.
Numerous other investor lawsuits followed. The California state lawsuit was removed to federal court and consolidated along with 40 other federal lawsuits before Judge Robert Sweet in the Southern District of New York.[60] On May 1, 2013, Facebook filed a motion to dismiss all claims.[61] Oral arguments on the motion will be heard on September 18, 2013.
At the time the first investor lawsuits were filed, Facebook was believed to have had $10 million dollars in primary coverage provided by HCC Insurance Holdings, Inc., and it is thought to have had an insurance tower of up to $200 million.[62] Facebook likely has coverage for many of the claims asserted against it under a securities endorsement or coverage part of its D&O insurance policies.[63]
D&O policies that include this coverage typically apply to claims under sections 11 and 12 of the Securities Act.[64] However, the policies likely would not provide coverage for any loss that resulted from actual fraud, ill-gotten gains, disgorgement, or restitutionary damages. Also of importance, of course, is whether the policies provide coverage for defense costs incurred by Facebook.
Effect on the D&O insurance market. The Facebook IPO litigation has understandably caused some jitters within the D&O insurance industry.[65] The size of the IPO and volume of resulting litigation has given underwriters pause—commentators speculate that insurance coverage for new IPOs may become more expensive, particularly in the short term. The News Corp. settlement has engendered similar concerns.[66]
To date, however, no major underwriting trends or changes to the coverage offered have been documented. Indeed, D&O insurers reported an improved direct loss ratio of 48 percent in 2012, from 51 percent in 2011.[67] Nevertheless, the same insurers reported rising premiums—the broker Aon, for example, reported a premium increase of 9.9 percent from the fourth quarter of 2011 to the first quarter of 2012.[68] Specifically cited as driving the increase are investor suits, merger and acquisition claims, FDIC activity, and LIBOR manipulation.[69] Direct losses have decreased but premiums continue to rise. We may extrapolate that uncertainty is the missing piece of the equation. Insurers, when unable to quantify risk accurately, are bound to err on the side of caution.
Conclusion
D&O insurance markets continue to react to recent develops in the law, including clawbacks of executive pay and bonuses, enforcement and investigation activities of the newly formed CFPB, and potential “crowdfunding” claims. And companies potentially face increasingly costly derivative lawsuits and litigation related to initial public offerings. Insurers, insureds, and brokers have managed and addressed some of these risks through specialized D&O insurance products. As the insurance market reacts to these emerging risks and potential claims, new products and options will likely continue to develop. In the meantime, all parties would be wise to consider carefully whether and to what extent these risks and claims are subject to coverage, limitations, and exclusions under existing policies.
Keywords: directors and officers insurance, emerging issues, executive compensation, clawback coverage, crowdfunding, JOBS ACT, Facebook, insurance market trends
Andrew Deutsch and Erin Doran are with Meagher & Geer PLLP, Minneapolis. Louis Chiafullo and Michael Smith are with McCarter & English, LLP, Newark, New Jersey.
[1] Fitch Ratings, Directors & Officers Liability Insurance: Market Update 1 (May 1, 2013).
[2] 15 U.S.C. § 7243 (a) (2013).
[3] S.E.C. v. Jenkins, 718 F. Supp. 2d 1070, 1072–80 (D. Ariz. 2010) (SEC complaint survived 12(b)(6) motion to dismiss despite lack of alleged wrongdoing by CEO).
[4] Jenkins, 718 F. Supp. 2d at 1075.
[5] 15 U.S.C. § 7243 (a)(1) (2013).
[6] 15 U.S.C. § 7243(a)(2) (2013).
[7] 12 U.S.C. § 5221 (b)(3) (2013).
[8] 15 U.S.C. § 78j-4 (2013).
[9] 15 U.S.C. § 78j-4(b)(2) (2013).
[10] 15 U.S.C. § 78j-4(b)(2) (2013).
[11] Joseph Bachelder, “Clawbacks under Dodd-Frank and Other Federal Statutes,” N.Y. L.J., May 2011.
[12] 12 U.S.C. § 5390 (a) (2013).
[13] 12 U.S.C. § 5390(s)(1) (2013).
[14] 12 U.S.C. § 5390(a) (2013).
[15] 12 U.S.C. § 5390(c)(1)(B) (2013).
[16] 12 C.F.R. § 380.7 (2013).
[17] 12 C.F.R. § 380.7(a)(1) (2013).
[18] 12 C.F.R. § 380.7(a)(1) (2013).
[19] 12 C.F.R. § 380.7(a)(2) (2013).
[20] 12 C.F.R. § 380.7(a) (2013).
[21] 12 C.F.R. § 380.7(a) (2013).
[22] See K. Alan Parry & Eric G. Barber, “Dodd-Frank’s Impact on D&O Insurance,” Coverage, Vol. 21, No. 6 (Nov./Dec. 2011).
[23] See, e.g., Parry & Barber, supra note 22. The authors have also encountered such so-called “dishonest act” exclusions that are triggered by a “non-appealable final adjudication” on one extreme, or simply fraud/intentional wrong “in fact.” Obviously, the wording of the exclusion is determinative as to coverage.
[24] See, e.g., Level 3 Commc’ns, Inc. v. Fed. Ins. Co., 272 F.3d 908, 911 (7th Cir. 2001) (“An insured incurs no loss within the meaning of the insurance contract by being compelled to return property that it had stolen, even if a more polite word than ‘stolen’ is used to characterize the claim for the property’s return.”).
[25] “Marsh Launches First-of-Its Kind Dodd-Frank/FDIC Receivership Endorsement,” Bus. Wire, Apr. 21, 2011. See also Ben Berkowitz, “Marsh Launches Insurance Against Bank Pay Seizure,” Reuters, Apr. 21, 2011.
[26] Mark Ruquet, “D&O Add-On Unveiled for FI Execs Caught in Systemic-Risk Whirlwinds,” Prop. Cas. 360, May 20, 2011.
[27] Marsh FINPRO Practice, FDIC Dodd-Frank Receivership Endorsement (2011) (copy on file with authors).
[28] See Marsh FINPRO Practice,Protecting Your Personal Assets: Insurance Coverage for FDIC Receivership Claims under Dodd-Frank (2011).
[29] See “Arch Insurance Group Announces New D&O Policy for Public Companies,” Bus. Wire, Nov. 7, 2012.
[30] Executive Compensation Clawback Full Enforcement Act, H.R. 5860, 112th Cong. (2012).
[31] H.R. 5860, supra note 30. See also Steven Weisman & Nicholas Insua, “Insurance Coverage for Clawbacks Could Be Affected by New Legislation,” Bus. Ins., Apr. 15, 2013.
[32] Weisman & Insua, supra note 31.
[33] See Press Release, Comm. on Fin. Servs.—Democrats, Frank Introduces Bill to Prohibit Insurance Policies Against Executive Compensation Clawbacks (May 30, 2012).
[34] E.g., TIG Ins. Co. v. Nobel Learning Cmtys., Inc.,No. CIV.A. 01-4708, 2002 U.S. Dist. LEXIS 10870, at *43–44 (E.D. Pa. June 18, 2002); PPG Indus., Inc. v. Transamerica Ins. Co.,975 P.2d 652, 656–57(Cal. 1999).
[35] 12 C.F.R. § 1002 et seq. (2013).
[36] See, e.g., Halah Touryalai, “Richard Cordray’s Controversial Appointment Could Haunt Him,” Forbes, Jan. 5, 2012.
[37] Evan Weinberger, “For CFPB Targets, Insurance Coverage Could Be a Headache,” Law 360, May 2, 2013.
[38] 15 U.S.C. § 77d.
[39] JOBS Act, Pub. L. No. 112-106, tit. III, §§ 301–305 (Apr. 5, 2012).
[40] See SEC, Jumpstart Our Business Startups Act: Frequently Asked Questions about Crowdfunding Intermediaries (May 7, 2012).
[41] See SEC, Comments on SEC Regulatory Initiatives under the JOBS Act: Title III—Crowdfunding.
[42] Robb Mandelbaum, “‘Crowdfunding’ Rules Are Unlikely to Meet Deadline,” N.Y. Times, Dec. 26, 2012.
[43] Lyndon M. Tretter, “Crowdfunding: Small-Business Incubator or Securities Fraud Accelerator?” Westlaw J. Secs. Litig. & Reg., Aug. 22, 2012.
[44] Press Release, SEC, SEC Seeks to Halt Scheme Raising Investor Funds under Guise of JOBS Act (Apr. 25, 2013).
[45] Matt Drange, “Crowdfunding Advertising an SEC Concern,” S.F. Chron., Oct. 23, 2012. See also Kevin LaCroix, “What to Watch Now in the World of D&O,” D&O Diary, Sept. 6, 2012.
[46] See Press Release, Barney & Barney LLC, Crowdfunding—D&O Implications (Nov. 1, 2012). See also LaCroix, supra note 45.
[47] See Amy Chozick, “News Corp. in $139 Million Settlement With Shareholders,” N.Y. Times, Apr. 22, 2013.
[48] Bibeka Shrestha, “News Corp.’s $139M Deal May Make for Pricier D&O Coverage,” Law 360, Apr. 23, 2013.
[49] Facebook, Registration Statement (Form S-1) (Feb. 1, 2012).
[50] Alistair Barr & Alexei Oreskovic, “Facebook IPO Roadshow Scheduled for May 7: Source,” Reuters, May 1, 2012.
[51] Facebook, Eighth Amended Registration Statement (Form S-1/A) (May 16, 2012).
[52] Julianne Pepitone, “Facebook’s IPO Price: $38 per Share,” CNN Money, May 17, 2012.
[53] Julianne Pepitone, “Facebook IPO: What the %$#! Happened?,” CNN Money, May 23, 2012.
[54] Michael J. De La Merced, “Facebook Closes at $38.23, Nearly Flat on Day,” N.Y. Times Dealbook, May 18, 2012.
[55] Nadia Damouni, “Morgan Stanley Was a Control-Freak on Facebook IPO—And It May Have Royally Screwed Itself,” Reuters, May 19, 2012.
[56] Poornima Gupta & Alexei Oreskovic, “The Numbers on the Facebook Earnings Revisions,” Reuters, May 22, 2012.
[57] Michael J. De La Merced, “Facebook Falls Again in Third Day of Trading,” N.Y. Times Dealbook, May 22, 2012.
[58] Class Action Complaint and Demand for Jury Trial, Lazar v. Facebook, No. CIV514065 (Cal. Super. Ct. San Mateo Cnty. filed May 22, 2012).
[59] Class Action Complaint for Violation of the Federal Securities Laws, Roffe v. Facebook, No. 12-cv-04081 (S.D.N.Y. filed May 22, 2012).
[60] In re Facebook, Inc. IPO Secs. & Derivative Litig., 899 F. Supp. 2d 1374, 1375 (J.P.M.L. Oct. 4, 2012).
[61] Defendant’s Motion to Dismiss, In re Facebook, Inc. IPO Secs. & Derivative Litig., MDL No. 12-2389 (S.D.N.Y. filed May 1, 2013).
[62] Judy Greenwald, “Facebook IPO Problems Teach Tough Lessons,” Bus. Ins., June 3, 2012; Amy O’Connor, “Facebook Fiasco, ‘Blank Check’ Companies Disrupt IPO Insurance Market,” Ins. J., June 15, 2012.
[63] O’Connor, supra note 62; Christopher Duca, “IPOs and D&O,” Boardroom Briefing: D&O Insurance (2006).
[64] Duca, supra note 63.
[65] Mark E. Ruquet, “Facebook Gives Insurers D&O Jitters on Future IPOs,” Prop. Cas. 360, May 29, 2012.
[66] Shrestha, supra note 48.
[67] Fitch Ratings, Directors & Officers Liability Insurance: Market Update 3 (May 1, 2013).
[68] Fitch Ratings, supra note 67, at 3.
[69] Fitch Ratings, supra note 67, at 4–5.