The United States District Court for the District of Delaware, applying Delaware law, has held that lawsuits alleging breaches of fiduciary duty did not constitute “Securities Claims” under a D&O policy. Calamos Asset Mgt., Inc. v. Travelers Cas. & Surety Co. of Am., 2021 WL 663056 (D. Del. Feb. 19, 2021).
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There were several important developments impacting private investment funds in 2020. The SEC continued to prioritize this area of the capital markets, and it issued important rules and guidance impacting private funds and investment advisers. There also were two important court rulings, one by the United States Supreme Court and one by the Delaware Supreme Court. This Article summarizes the most important developments in the private fund space – in chronological order.
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Reversing the trial court, the Delaware Supreme Court has held that an appraisal proceeding does not constitute a “Securities Claim” under a D&O policy. In re Solera Insurance Coverage Appeals, Nos. 413,2019 and 418,2019 (Del. Oct. 23, 2020).
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The United States Securities and Exchange Commission has increased its focus in recent years on investment advisers who manage private funds. The Division of Enforcement of the SEC reported that in fiscal year 2019, 36% of all civil and stand-alone administrative proceedings were brought against investment advisers and investment companies.
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The Supreme Court’s June 22 decision in Liu v. Securities and Exchange Commission addressed important issues about the SEC’s authority to obtain “disgorgement” and the meaning of the term. This article summarizes the Court’s ruling in Liu, including the Court’s characterization of the term disgorgement and limitations on the SEC’s ability to obtain the remedy. It then identifies practical implications of the decision in the context of SEC enforcement, as well as potential insurance coverage implications of the decision.
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In a case in which Wiley Rein represented the insurer, a federal district court in Maine has held that an insurer had no duty to defend an enforcement action brought by the Securities and Exchange Commission (SEC) under a lawyers’ professional liability policy because none of the relief sought constituted “damages” as defined in the policy. Marcus v. Allied World Ins. Co., No. 2:18-cv-253-DBH, 2019 WL 1810954, (D. Me. Apr. 23, 2019). The court held that when sought by the SEC, disgorgement is properly characterized for insurance purposes as a penalty. The court also held, however, that the policy’s investment advice exclusion did not apply to negate the insurer’s duty to defend a related securities fraud class action, but it rejected the insured’s argument that because the actions were “related claims,” the insurer’s duty to defend the securities lawsuit also obligated it to defend the SEC enforcement action.
Continue Reading Maine District Court Holds Insurer Has No Duty to Defend SEC Enforcement Action Because Disgorgement Constitutes a Penalty
As has been widely reported, the U.S. Supreme Court has issued its much-anticipated opinion in Halliburton Co. v. Erica P. John Fund, No.
Continue Reading The Winners in Halliburton: Defense Counsel and Experts