Whether the Securities and Exchange Commission is reviewing another alleged Ponzi scheme, an attorney general is investigating a corporation’s public disclosures or a government committee is examining a transaction that purportedly contributed to the current economic crisis, it is very difficult to pick up the newspaper these days without reading about a new investigation into a corporation’s financial affairs.
When a corporation is under siege, the directors and officers look to legal counsel to protect their rights during the investigation. But regulatory investigations are often lengthy, particularly those involving alleged fraud or large sums of money, and qualified legal counsel can get expensive. Who pays for the legal fees? Aside from their own personal bank accounts, directors and officers may have access to two potential sources of funding for legal counsel: (i) the corporation, in accordance with a right to indemnification; and (ii) directors’ and officers’ or D&O insurance.
