Thursday, September 28, 2006

Options Backdating Litigation Update and Other Web Notes

The D & O Diary’s running tally of options backdating lawsuits (which can be found here) has been updated to include new securities lawsuits that have been filed against Meade Instruments and Michaels Stores; a new ERISA action against Home Depot; and several new shareholders' derivative actions.

With the addition of the new actions, the count of options timing-related securities fraud lawsuits now stands at 19, and new cases are still continuing to arise. Even though the cases are coming in gradually rather than all at once, the total volume is starting to accumulate toward the point where collectively they are starting to look like a more serious problem for the D & O insurance industry. The number of options timing related derivative lawsuits, which now stands at 79, also represents a frequency concern. The count of ERISA related lawsuits stands at 6.

Thanks to alert reader Paul Curley for the Home Depot and Michaels Stores links.

Merck/Vioxx Case Study: A very detailed post on the LawReader.com blog entitled "Merck Insurance Carriers Jump Ship Over Vioxx Diasaster" (here) reviews the enormous burden that Merck faces as a result of the flood of litigation involving its now withdrawn Vioxx drug. The post quotes at length from Merck’s SEC filings regarding the litigation, including, for example, the note that during 2005 Merck spent $285 million (!) defending the various lawsuits, including shareholder lawsuits relating to Merck's Vioxx disclosures. The post also reviews the various insurance coverages that Merck potentially has available to respond to the litigation, including its directors and officers liability insurance program. The post reports, however, that all of Merck’s insurance may not be available due to disputes that have already arisen with its insurance carriers. The post quotes Merck’s August 7, 2006 SEC filing that "[a]t this time, the Company believes that its insurance coverage with respect to the Vioxx lawsuits will not be adequate to cover its defense costs and any losses."

The article is quite detailed and very interesting. Thanks to Adam Savett of the Lies, Damn Lies blog for the link to the LawReader.com post.

Options Backdating Seminar: On October 13, 2006, I will be participating on a panel entitled "Directors and Officers Insurance Policies and Coverage for Options Claims," at the"Stock Options Practices" seminar, to be held at the Marriott Financial Center in New York. The seminar is sponsored by HarrisMartin. Further information about the seminar may be found here.

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