D&O Insurance: Are Subpoenas "Claims"?

D&O Insurance: Are Subpoenas "Claims"? - 1/21/2009

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2009 News and Press Releases

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News	News 2009
HEADLINES \| SETTLEMENTS AND DISMISSALS \| COURT FILINGS LINKS TO OTHER NEWS \| NEWS ARCHIVE	HEADLINES ARCHIVED SETTLEMENTS AND DISMISSALS ARCHIVED

DISMISSAL NEWS:

D&O Insurance: Are Subpoenas "Claims"?
Kevin LaCroix

The D & O Diary. January 21, 2009
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EXCERPT: […] Eleventh Circuit Affirms Options Backdating Lawsuit Dismissal: Although they may seem but a distant memory, the options backdating cases continue to grind through the courts. In a January 9, 2009 opinion, the Eleventh Circuit affirmed the lower court’s dismissal of the securities class action lawsuit filed in connection with the options backdating allegations involving Witness Systems. Background regarding the case can be found here. The lower court had dismissed the case in reliance on the Supreme Court’s decision in the Tellabs case, holding that the complaint did not satisfy the PSLRA’s requirements for pleading scienter. The trial court dismissed the case without allowing the plaintiffs leave to amend, though the plaintiffs had requested leave in a footnote to an opposition brief. A copy of the district court’s opinion can be found here. The Eleventh Circuit, after noting that as a result of the options backdating the company had "minimally overstated earning" between 2004 and 2006, affirmed the dismissal. Among other things, the Eleventh Circuit noted that the complaint contained no allegation that the company’s CEO "had any knowledge of the accounting principles relating to stock options," and observed that the inference that the CEO "knew that backdated options in 2000 and 2001 had led to overstated earnings during the class period in 2004 to 2006 is not as compelling as the competing inference that he was unaware that backdated options had affected financial statements several years later." The court specifically noted that the "de minimus change" in the financial statements was not a "glaring ‘red flag’" that the company was overstating earning.

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