Some D&O/Systemic Lawsuit Reading

There are a few interesting bits of information in this article which pertain to Securities class actions D&O in general.

  1. Goldman has been filed against under section 10-b of the 1934 Act. Actions are brought under this section when a company issues false or misleading statements and some of the individuals in the company traded stock and benefited from that misinformation. This filing relates specifically to the ABACUS deal (for an exhaustive look at what the ABACUS deal is and the potential problems with Goldman’s behaviour, see this). This action follows several derivative and private lawsuits against Goldman. It is worth pointing out that Goldman was the least involved in the mortgage-backed/subprime mess and so this could be seen as only the very beginning. Goldman, according to this, has a “massive tower” of side A cover, but nothing more.
  1. There are some notes on the Chubb conference call, where the Chubb Vice-Chairman was gloating about the benign claims environment of the credit crisis / recession. In summary:
    1. Credit crisis class actions claims: low frequency
    2. Non credit crisis class actions (ie “the backlog”): very low frequency and approaching the 2-yeat Statute of Limitations (more on the S of L here)
    3. Dismissal rate for derivative actions: high
  1. The article goes on to discuss some rebuttal points against Chubb’s VC:
    1. The filing delays are still large and we’re still not sure why
    2. When derivative suits go to settlement, Side A losses are increasingly forthcoming (see Broadcom)
    3. The real threat to Side A remains insolvency

  In regards to 3c, I’d say that the macroeconomic environment suggests the systemic threat from insolvency has mostly passed. The real ongoing threat is probably the potential uncovering of more Goldman-style wrongdoing in the financial sector, leading to renewed filings.