The arc of a federal case
Related federal securities class actions are typically consolidated before one judge, after which a lead plaintiff is appointed and files an amended complaint. Defendants usually move to dismiss, and while that motion is pending, discovery is generally stayed under federal securities law. Pleading standards in these cases are demanding, which makes the motion to dismiss a decisive stage in many matters. A case that survives moves into discovery and class certification, where questions about market efficiency and damages methodology often come to the fore. Many cases that proceed past dismissal resolve through settlement, frequently funded in large part by directors and officers insurance.
Steps the company takes early
Notify every directors and officers insurer on the program, primary and excess, and review the policies for consent requirements on counsel and settlement. Issue a litigation hold covering the individuals and systems tied to the disclosures at issue, including personal devices used for work. Coordinate public statements and any further disclosures with securities counsel, since what the company says next can be quoted in an amended complaint. Related matters often follow, such as derivative suits on behalf of the company, books and records demands, and SEC inquiries. If shares were sold in a registered offering, some claims may also be brought in state court, depending in part on what the company's charter provides.
Decisions for the board and management
In early meetings with the company we discuss the strength of the complaint's theories, the insurance tower and how far it is likely to stretch, and how the individual defendants will be represented. Separate counsel for some individuals may be needed if their interests could diverge from the company's. We also talk about how the litigation will be reported to the board and disclosed to investors, and how management can keep running the business while document collection and depositions proceed. The board should understand from the outset that decisions about settlement, if they come, will involve the insurers as well as the company.
