IPO issuance could exceed 200 for the third straight year, according to Renaissance Capital in its “Fall 2015 US IPO Preview” report. While this is no doubt exciting for the market, many of these corporations will face securities class action suits within the first three years of their IPO.
Securities class action suits against IPOs are on the rise. By the first half of 2015, we saw a marked increase (from 24 percent to 30 percent) in the cases filed against IPO companies, according to Woodruff Sawyer’s “DataBox Mid-Year Securities Class Action Report.”
The plaintiffs’ bar clearly views IPO companies as good targets for their suits. Perhaps this is because some IPO companies may not be fully prepared to face public-company levels of scrutiny, and so are more likely to experience incidents or even commit the type of foot fault that leads to litigation.
In addition, cases that implicate an IPO’s registration statement can be an easier win for plaintiff attorneys given that a company’s liability is strict for material misstatements or omisions in the registration statement.
Insurance carriers have taken note of this increased litigation activity for IPOs, and it has created a challenging environment for some to obtain the coverage they need.
Moreover, it’s important to keep in mind that the SEC and other regulating bodies like the Department of Justice continue to pursue individuals, not just corporations, in corporate misconduct.
Given the environment, where possible, I recommend that companies pondering an IPO start ramping up their D&O insurance during the renewal cycle the year prior to the IPO.
For more detailed information on how to prepare your D&O insurance program well ahead of your IPO, download your copy of Woodruff Sawyer’s guide: “IPO Track – D&O Insurance” today.
The views expressed in this blog are solely those of the author. This blog should not be taken as insurance or legal advice for your particular situation. Questions? Comments? Concerns? Email: email@example.com.