Will Their "Collective Stupidity" Spare Subprime Officials from Liability?

Will Their "Collective Stupidity" Spare Subprime Officials from Liability? - 12/10/2009

Home

Index of Filings

News and Press Releases

Filings

Decisions

Settlements

Litigation Activity Indices

Top Ten List

Annual/Quarterly Updates

Clearinghouse Research

Articles & Papers

Search

Related Sites

About Us

Local Rules

Sponsors

Register

_______________
Copyright © 2001
Stanford Law School

2009 News and Press Releases

SEARCH

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

HEADLINE NEWS:

Will Their "Collective Stupidity" Spare Subprime Officials from Liability?
Kevin LaCroix

The D & O Diary. December 10, 2009
_________________________________________________________________________

EXCERPT: In a provocative statement suggesting the unlikelihood of "damage awards" against subprime lenders’ directors and officers, XL Capital Ltd. CEO Michael McGavick yesterday told a Goldman Sachs Group conference that "being collectively stupid is not a basis for a lawsuit," according to a December 9, 2009 Bloomberg article. As reflected in the article, McGavick indicated that investors have little chance of extracting damages awards from executives and board members at firms that lost money, as the article put it, "betting on subprime mortgages." McGavick is quoted as saying that its "very hard to pick out the management team that did something wrong to the level that the law requires." McGavick’s comments have already kicked up controversy, as reflected in Ross Todd’s December 9, 2009 article on Am Law Litigation Daily, entitled "Are Directors and Officers Safe from Securities Fraud Suits Because They Were ‘Collectively Stupid?’" However, it is difficult to tell from the Bloomberg article how comprehensive McGavick’s comments were intended to be. Was he talking only about companies that invested in subprime mortgages or was he talking about a larger group of companies, including subprime lenders and other companies that were brought down or seriously damaged by the subprime meltdown? Subject to that uncertainty about the scope of McGavick’s comments, I have several thoughts and comments in reaction to his remarks. As an initial matter I note that while it may be true that "collective stupidity" hardly represents a legal theory on which liability might be based, it also is not a very promising defense. Even setting aside the colorful use of the word "stupidity," it is not a great defense to argue that everybody managed to get it wrong, as proved to be the case in the connection with options backdating, for example.

Back to News page | Back to Archived News 2009 page | Back to Top

�