But almost of the companies with options backdating problems had a derivative suit.
And, these derivative suits settled for cash—in some cases a lotof cash.
In these cases, the shareholder would typically go directly to court. No one likes to be sued, but derivative suits are especially threatening for individual directors and officers.
This is because, unlike securities class action suits, there is much less clarity about what can and cannot be indemnified by a corporation in the case of settlements and judgments of derivative suits.
In our recent “Focus on D&O Insurance Limits” report, we discuss limits in more detail, including what to do.
When securities class action suits are filed against directors and officers of public companies, it’s quite common to see derivative suits brought against these same directors and officers as almost a by-product of the securities class action suit.
For example, if a company’s stock falls precipitously, a class action suit follows, and we’d expect one or more derivative suits to be filed on the same underlying facts.
As a result, the plaintiffs’ bar learned that a precipitous stock drop isn’t a prerequisite for a lucrative lawsuit against a public company’s directors and officers.
The Current Derivative Suit Landscape, and How to Prepare Today, there are a lot of entry points to this type of litigation.