An additional 140 companies are also currently under investigation by government agencies for options backdating practices.
Interestingly, companies involved in options backdating do not make easy targets for securities class actions because there usually has not been a significant stock decline after public disclosure of the backdating, and thus no basis for class-wide damages.
Instead, the plaintiffs' bar has turned to shareholder derivative actions (brought on behalf of the company against its directors and officers for breaches of their fiduciary duties to the company) to seek disgorgement of improper profits and other relief on behalf of the company itself.
As the current wave of stock option backdating investigations and shareholder derivative lawsuits sweeps through the D&O industry, this is a good time to step back, consider what is at stake in these cases, and anticipate some of the D&O coverage issues that will implicated by settlements of these cases.
D&O coverage may be sought for SEC investigations relating to option backdating practices, as well as for the few shareholder securities class action lawsuits filed to date.