Read The Recorder‘s roundup of the stock-option backdating scandal. There won’t be a test later … but there might be a subpoena.
“If there’s a big restatement and stock drop, I think you could see allegations of misrepresentation and the possibility of rescission,” said John Green, a Farella Braun & Martel partner in San Francisco who represents policyholders in insurance coverage matters.
More fuel for insurance disputes could be the issue of whether backdated options violate a “personal profit” clause. If company officers act to enrich themselves, the malfeasance is generally not covered, Green said. Whether a corporate board acting to enrich an executive through a backdated option grant violates that clause, he added, could become a matter of litigation.
“The main issues will be whether this is subject to the personal-profit exclusion,” said Green, who is currently counseling four companies on backdating issues. “I don’t think it is.”
WHEN I WAS A YOUNG LAWYER �
While insurance lawyers on either side of the field are readying for future court battles, adding to the steadily growing “mini-industry,” no one is saying the volume of corporate corruption insurance disputes will ever reach the hallowed heights of those related to asbestos claims. AT&T Park will not play host to crowds of insurance lawyers arguing about who should bear the cost of backdating liability as San Francisco’s Nourse Auditorium did in the mid-1980s, when Judge Ira Brown set up shop to hear arguments over asbestos liability.
“It’s hard to come up with another class of claims as large as asbestos,” said Morgan, Lewis’ Halbreich.
Today, even with asbestos cases still providing insurance lawyers with a substantial amount of work, it’s much less than before. Thanks to a combination of state tort reform and judicial scrutiny the asbestos docket has dropped dramatically over the last three years, The American Lawyer, a Recorder affiliate, reported last summer.
“As time goes along, that business is going to slowly evaporate,” said DLA’s Stephens. “But my guess is that something else will take its place.”
