Financial news sites were ablaze recently with the news that a co-founder and board member of the data server company Super Micro Computer had been indicted, along with two other company executives, for allegedly conspiring to smuggle high-end Nvidia chips into China, in violation of U.S. export control laws. With news that sensational, and in light of the ensuing stock price drop, it was only a matter of time before plaintiffs’ lawyers would file a securities class action lawsuit. And, sure enough, late last week, a plaintiff shareholder did file a securities suit against the company.

The complaint in the new lawsuit, which can be found here, is interesting in and of itself, relating as it does to the sensational circumstances involved. But the lawsuit is arguably even more interesting for what it represents – that is, as an illustration of the ways that geopolitical issues can – and increasingly are – translating into securities class action lawsuits.

Background

Super Micro Computer designs, develops, and manufactures data server and storage systems. The company’s flagship products are servers that integrate Nvidia Corporation’s graphics processing units (GPUs) and are subject to strict U.S. export controls barring their sale to China without a license.

On March 19, 2026, the U.S. Department of Justice announced the unsealing of an indictment  against three Super Micro executives – including company senior VP, board member, and co-founder Yih-Shyan “Wally” Liaw – of “conspiring to divert high-performance servers assembled in the United States and integrating sophisticated U.S. artificial intelligence technology to China, in violation of U.S. export control laws.”

The DOJ’s press release quotes the U.S. Assistant Attorney General for National Security, John Eisenberg, as saying “The indictment unsealed today details alleged efforts to evade U.S. export laws through false documents, staged dummy servers to mislead investigators, and convoluted transshipment scheme, in order to obfuscate the true destination of restricted AI technology – China.”

Super Micro, which was not named as a defendant in the indictment, said that upon learning of the indictment, the company had placed Liuw on leave. The next day, Liuw resigned from the company’s board.

According to the complaint, Super Micro’s stock price declined over 33% on the news of the indictment.

The Lawsuit

On March 25, 2026, a plaintiff shareholder filed a securities class action lawsuit in the Northern District of California against Super Micro and two of its executives (neither of whom were named as defendants in the criminal indictment). The complaint purports to be filed on behalf of investors who purchased the company’s shares between April 20, 2024, and March 19, 2026.

The complaint alleges that during the class period the defendants failed to disclose to investors that: “(1) a significant portion of the Company’s sales of servers were to companies based in China; (2) these transactions violated U.S. export control laws; (3) there were material weaknesses in the Company’s controls to ensure compliance with applicable export control laws and regulations; and (4) that, as a result of the foregoing, Defendants’ positive statements about the Company’s business, operations, and prospects were materially misleading and/or lacked a reasonable basis.”

The complaint alleges that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint seeks to recover damages on behalf of the class.

Discussion

As Sarah Abrams noted in a recent post on this site (here), in the current political environment, geopolitics represents an increasingly important component of D&O risk.

Among other things, as I have detailed in previous posts on this site (for example, here), the current Trump administration’s tariff policies have not only had a significant impact on the U.S. trade and the global economy, but have also translated into a series of recent D&O claims.

Other geopolitical sources of D&O stress also pertain to global trade issues, particularly export controls and trade sanctions. In many instances, stresses involving these trade issues have translated directly into D&O claims, as this new lawsuit against Super Micro shows. Indeed, securities class action lawsuit filings arising export control issues are, in fact, nothing new.

For example, as I noted here, in March 2020, a U.S. semiconductor company was hit with a securities class action lawsuit after disclosing that it was under investigation from the U.S. Department of Justice regarding the company’s compliance with export controls relating to business transactions with the Chinese technology company Huawei.

Similarly, in 2015, the software firm Vasco Data Security was sued in a securities class action lawsuit after the company disclosed that it had self-reported a possible violation of federal prohibitions against sales of goods to parties in Iran, as discussed here.

Interestingly, among the claims in the list of prior securities suits involving export control issues is a securities suit filed in October 2024 against none other than Super Micro Computers. The lawsuit, which drew heavily on a short seller report, contained a number of allegations, including the assertion that the company had misrepresented its compliance with trade control regulations restricting exports to Russia, as I discussed in a blog post at the time the suit was filed. That case remains pending in the Northern District of California. The court heard oral argument on the defendants’ motion to dismiss on March 12, 2026.

It should be emphasized that tariff concerns and export control issues are not the only geopolitical factors contributing to D&O risk. Other areas of geopolitical concern include money laundering laws, trade sanctions, and anti-bribery and corruption laws.

A recent example of a securities suit arising out of trade sanction-related issues is the December 2024 lawsuit filed against the U.S.-listed Kazakhstan banking corporation Kaspi.kz,  in which the plaintiff alleged that the company had misrepresented the extent to which its bank subsidiary was being used for unlawful purposes, including assisting Russians to evade sanctions imposed in the wake of the 2022 invasion of Russia. The lawsuit is discussed in detail here.

In an example of a shareholder derivative lawsuit arising out of trade sanction-related issues, as discussed here, a shareholder of J.P. Morgan Chase filed a derivative lawsuit against the company, as nominal defendant, and certain of its directors and officers alleging breaches of fiduciary duty in connection with the company’s $88.3 settlement with the U.S. Department of Treasury’s Office of Foreign Assets Control (OFAC).

And in an example of the ways in which alleged money laundering law (AML) violations can translate into securities litigation, in January 2025, as discussed here, a plaintiff shareholder filed a securities suit against the money transfer firm Block based on allegations that the company’s failure to maintain basic AML protocols had created a “haven for criminal and illicit activities,” allegedly contrary to the company’s representations.

Geopolitical Issues Seem Likely to Become Increasingly Important This Year: Under the current conditions, the influence of geopolitical factors on D&O risk is only likely to increase — among other things, because of the war in Iran. The Iran war has not only disrupted the global flow of oil, gas, and diesel fuel, it threatens the global food supply; it has snarled global supply chains; it is driving up shipping costs; and it is boosting prices for a wide range of goods and products, including fertilizer, helium, cotton, and aluminum, among many other things. All of these things are likely to drive economic inflation.

In other words, it seems likely that in the weeks and months ahead that geopolitical concerns are likely to have an enormous impact on economies and businesses alike. I expect that as the year progresses we will have many more occasions on this blog to write about geopolitical issues

A Final Note About This Lawsuit Filing: One final note about this new lawsuit against Super Micro is that qualifies as an AI-related securities suit. Indeed, in its press release to which I linked above, the DOJ went out of its way to emphasize that the technology at issue in the indictment is critically important precisely because it relates to artificial intelligence. The agency emphasized that the smuggled servers contained “artificial intelligence technology,” and also highlighted that the purpose of the indictment was to “bring justice to bad actors who aim to profit from illegally exporting U.S. artificial intelligence technology.” As far as the DOJ was concerned, the fact that the trade control violation related to sensitive AI technology was at the crux of the seriousness of the alleged criminal violation.

So for that reason I have no difficulty categorizing this new lawsuit as AI-related, making this case the seventh AI-related securities suit filed this year, and suggesting that as the year progresses AI-related securities suits will represent a significant part of the year’s overall securities suit filings.

The Backstory on the Super Micro Allegations: As interesting as I think these larger geopolitical issues are, it is also undeniably true that the underlying allegations in the criminal indictment are also quite interesting. If you have a few minutes, I highly recommend taking the time to read the DOJ press release, which describes in detail how the defendants allegedly managed the scheme to smuggle the prohibited technology into China. The alleged scheme was quite involved, including dummy servers, false labelling, encrypted messages, and the unlicensed movement of goods.

There is an interesting backstory to these allegations, including, among other things, the prior allegations noted above that the company supposedly had previously misrepresented its compliance with trade controls on the shipment of prohibited items to Russia.

However, there apparently is even more to the backstory than that. As Jonathan Weil detailed in a March 20, 2026 Heard on the Street column in the Wall Street Journal (here), Liaw’s recent resignation as a director of Micro Computer was in fact not the first time he had been forced to resign from the company. As Weil details in his column, Liaw previously resigned from the company in 2018, along with the company’s finance chief, after an investigation by the company’s audit committee led the company to restate its financial results. Super Micro paid $17.5 million in 2020 to settle SEC allegations of widespread accounting violations.

Weil reports that Liaw returned to Super Micro as a consultant in 2021, then as senior vice president in 2022, and was re-appointed to the board in late 2023. The short seller report that was the basis of the 2024 lawsuit against the company (involving the Russian trade control violation allegations) included in its litany of concern with the company that Liaw had been rehired notwithstanding the 2018 accounting mess.

The rise of Artificial Intelligence (AI)-based tools and applications has also meant the rise in AI-related infrastructure, such as data centers and power generation support. And just as we have seen the rise of securities litigation relating to companies’ adoption of AI tools and processes, we have also seen securities suits relating to AI infrastructure development.

In the latest example of this kind of AI infrastructure-related litigation, on March 20, 2026, a plaintiff shareholder filed a securities class action lawsuit against the engine and power systems company Power Solutions International, alleging that the company’s new strategy of providing power generation solutions for AI data centers had fallen short of the company’s representations. A copy of the new complaint against Power Solutions can be found here.

Background

Power Solutions designs, manufactures, and sells engines and power systems. In the past, its sales primarily involved small engines for industrial and transportation uses. After experiencing declines in its traditional sales in the first half of 2025, the company, as the complaint puts it, “pivoted to lean into the booming data center market.” The company, according to the complaint, “claimed that providing power generation solutions amid the AI-drive data center expansion was driving both strong present and future performance,” citing these new sales as “high growth, higher-margin” business.

On March 2, 2026, the company released its fourth quarter and full year 2025 financial results, disclosing that rather than increasing due to the higher margin AI data center business, it gross margin had in fact decline 8% year over year due to “operating inefficiencies related to the Company’s accelerated production ramp-up for data center product lines.” In its outlook for 2026, the company projected, according to the complaint, only “moderate margin improvement from the products servicing the data center markets.” According to the complaint, the company’s share price declined nearly 29% on this news.

The Complaint

On March 20, 2026, a plaintiff shareholder filed a securities class action lawsuit in the Northern District of Illinois against Power Solutions and certain of its directors and officers. The complaint purports to be filed on behalf of investors who purchased the company’s securities between May 8, 2025, and March 2, 2026.

The complaint alleges that during the class period, the defendants failed to disclose to investors that: “(1) the Company overstated its ability to capture sales demand for its power systems solutions, particularly within the data center market; (2) the Company understated the impact of its enhancements to manufacturing capacity to meet demand  with the data center market, including the expected costs and the nature of the related ‘inefficiencies’; and (3) that as a result of the foregoing Defendants’ positive statements about the Company’s business, operations, and prospects were materially misleading and/or lacked a reasonable basis.”

The complaint alleges that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint seeks to recover damages on behalf of the plaintiff class.

Discussion

It has already become apparent that AI-related securities class action lawsuit filings will include not only lawsuits filed against companies in connection with their adoption of AI tools and processes. We have already seen securities suit filings that involve AI-related infrastructure companies, as well.  

For example, in early January this year, a plaintiff shareholder filed a securities class action lawsuit against the start-up AI energy support company Fermi, which aims to build multiple power generation centers intended to provide dedicated power for AI workloads. The Fermi lawsuit is discussed in detail here.

Similarly, in February, CoreWeave, a AI cloud computing company delivering infrastructure and services through large data centers, was hit with a securities lawsuit after the company experienced delays in its data center development due to design revisions, weather delays, and other difficulties, as discussed here.

These prior lawsuits, and the new lawsuit against Power Solutions, involve allegations that the companies overstated their AI-related prospects and opportunities based on the companies’ AI infrastructure strategy. Meaning that these lawsuits could be categorized as “AI-washing” type lawsuits, a type of AI-related litigation that is well-developed.

Another common thread among these lawsuits is that the companies allegedly announced AI-centered business strategies that garnered significant investor enthusiasm, only for the companies to experience difficulties and set backs, as a result of which the company’s actual experience fell short of expectations, resulting in a share price decline.

This fact pattern seems highly likely to continue to recur in the weeks and months ahead. There is a great deal of investor interest in companies poised to take advantage of AI. Company management is understandably quite interested in trying to tap into this investor enthusiasm. Indeed, there appear to be quite a number of companies in the IPO pipeline with AI Infrastructure business strategies. Some of these AI infrastructure-focused companies will succeed in executing on their strategies. Others, like the defendant companies in these AI infrastructure-related suits, may encounter difficulties. It seems likely that many of these companies experiencing difficulties in executing on their AI strategies could also experience securities class action litigation.

In thinking about the extent of the potential exposure among these kinds of AI-adjacent companies, it is important to think about what industries and sectors might be affected by this dynamic.

Obviously, as the cases already filed show, these risks affect construction companies, energy supply companies, and data center infrastructure and services companies. There are also a host of other industries that potentially will be affected by the advent of AI; many companies in those industries will also face execution risk as they adopt AI-centered strategies. These other industries include, for example, finance; healthcare; logistics and transportation; education; professional services.

Based on this analysis, I think there is a probability (perhaps even a likelihood) that we will see cases like this, where companies face execution risk as they adopt AI-based strategies. These risks are most obvious for companies directly involved in the business of AI, as well as the AI infrastructure companies. But the risks are also there in many other industries, as increasing numbers of companies seek to adopt AI-centered strategies.

In any event, it is also worth noting that we are not yet even a quarter of the way through the year, yet, according to my tally, this case is the sixth AI-related securities suit to be filed in 2026. It seems increasingly likely that AI-related securities litigation will be a significant part of the overall volume of securities lawsuit filings in 2026.

In the wake of the February 20, 2026, U.S. Supreme Court decision to invalidate tariffs imposed under the current Administration’s use of the International Economic Emergency Powers Act (IEEPA), litigation has been filed by companies seeking tariff refunds and by shareholders alleging securities violations against a company whose operations and financial results were impaired by “tariff headwinds.”   A new category of litigation is also beginning to appear: consumer class actions alleging that companies improperly passed tariff costs on to customers.

On March 6, 2026, a putative class action filed against Fabletics, a private athleisure company, founded by actress Kate Hudson, alleged that the company violated Illinois Consumer Fraud and Deceptive Practices Act (ILFCA) by passing through IEEPA tariffs.  Days later, on March 11, 2026 another putative consumer class action lawsuit was filed against Costco Wholesale Corporation (Costco) in the Northern District of Illinois (Costco Complaint), alleging that the Costco also improperly passed through IEEPA tariffs in violation of multiple state consumer protection statutes.   

The following will discuss the Fabletic and Costco Complaint allegations and the management liability exposure faced by Fabletics, Costco and similarly situated companies that may have passed down tariff charges to customers.

The Fabletics Complaint

The putative class action against Fabletics was filed in the Circuit Court of Cook County of Illinois and alleges that the company improperly charged consumers tariff-related fees on certain purchases through its website (Fabletics Complaint). Along with violations of ILFCA, the Fabletics Complaint asserts a claim for unjust enrichment. The plaintiff alleges that these charges were presented to consumers as necessary to cover tariffs imposed on imported goods and contends that tariff charges were deceptive or otherwise improper because consumers were allegedly required to pay amounts that were not legally owed or that were mischaracterized as mandatory tariff obligations. The Fabletics Complaint alleges damages, restitution, disgorgement, and other equitable relief. The complaint also seeks attorneys’ fees and other litigation costs.

The Costco Complaint

The Costco Complaint was brought by a Costco member on behalf of consumers who purchased tariff-affected goods between February 2025 and February 2026 and alleges that the company improperly retained profits associated with tariffs imposed under IEEPA.  In particular, the Costco Complaint alleges that the company passed the cost of the tariffs on to customers through higher retail prices while simultaneously seeking refunds of those same tariffs from the federal government through litigation in the U.S. Court of International Trade. Costco’s recovery of government refunds without returning those amounts to customers would constitute unjust enrichment and deceptive business practices. The lawsuit asserts claims under multiple state consumer protection statutes as well as claims for unjust enrichment and money had and received, and seeks restitution of the tariff-related price increases, damages, and other equitable relief. 

Discussion

As we have previously discussed on the D&O Diary, the tariffs imposed under IEEPA during the second Trump administration have resulted in refund and securities claims. The Fabletics and Costco Complaints highlights what may be an expanding landscape of litigation arising out of the invalidation of the IEEPA tariffs. Specifically, an emerging effort by consumer plaintiffs to target companies that allegedly passed-through tariff costs through to customers. Both putative class actions thus raises a number of issues that may be relevant for private company management liability exposures.

In particular, the Fabletics and Costco Complaints illustrates how business decisions relating to pricing and cost pass-through strategies can become the subject of consumer litigation. During periods of economic disruption or regulatory uncertainty, companies often must decide whether to absorb increased costs or to pass those costs through to customers. In the context of tariffs, many companies elected to implement tariff surcharges or other pricing adjustments designed to offset the increased costs associated with importing goods. Shifting operational costs to consumers may result in similar consumer class actions who may implicate private company D&O insuring agreements.

Most private company D&O policies contain coverage provisions analogous to the traditional public company Side A, Side B, and Side C insuring agreements. Side A coverage generally protects individual directors and officers when the company is unable to indemnify them, while Side B coverage reimburses the company for amounts it pays to indemnify its directors and officers. Side C coverage, often referred to as “entity coverage,” typically provides direct coverage to the company itself for certain types of claims.

In the case of a consumer class action alleging deceptive business practices, potentially relevant coverage includes Side C entity coverage. Unlike public company D&O policies, where entity coverage is typically limited to securities claims, private company policies often provide entity coverage for a broader range of claims including certain consumer protection lawsuits, if not excluded or limited by endorsement.  However, allegations of fraud or deceptive trade practices could be subject to exclusions, including fraud, intentional misconduct, or the gaining of profit or advantage to which the insured was not legally entitled.  Such exclusions typically apply only after a final adjudication establishing such conduct.

In addition, the nature of relief sought in consumer class actions may include restitution, disgorgement, or other equitable relief designed to return allegedly improper charges to consumers. Whether restitutionary relief constitutes covered “loss” under a management liability policy may be disputed because it represents the return of amounts that the insured allegedly was not entitled to retain. Jurisdictions finding restitution insurable vary, and disputes over whether restitution or disgorgement constitutes covered loss may become turn into coverage litigation.

Defense costs, by contrast, may result in exposure to management liability policies, even where the underlying claims involve allegations of consumer fraud or deceptive practices. As a result, even if indemnity coverage for settlements or judgments is disputed, substantial defense costs associated with defending consumer class action may continue to be incurred during the pendency of litigation.

Consumer class actions relating to tariff-related pricing practices may also result in investors or private equity owners potentially asserting derivative claims alleging that company leadership failed to adequately oversee pricing strategies, regulatory compliance, or legal risk management. These types of derivative claims might implicate Sides A and B coverage parts if individuals are named.

Regulatory investigations represent another potential exposure. Consumer class actions sometimes attract the attention of regulators such as the Federal Trade Commission (FTC) or state attorneys general (AG). If regulators begin investigating whether tariff-related surcharges were misleading or improperly disclosed to consumers, companies could incur substantial costs responding to investigative subpoenas, civil investigative demands, or other regulatory inquiries. If a management liability policy includes formal investigation coverage, inquiries and enforcement actions brought by the FTC or AGs may trigger coverage for investigation costs.

Conclusion

Retailers, apparel companies, electronics manufacturers, and other consumer goods companies were among many businesses most directly affected by tariffs imposed on imported products. And, these companies may have adopted pricing strategies designed to offset the increased cost of imported goods, including tariff surcharges or other price adjustments. If courts determine that tariffs were improperly imposed, plaintiffs’ lawyers may attempt to pursue similar consumer claims against other companies that implemented comparable pricing strategies.

For management liability insurers, these developments highlight the importance of appreciating how continued tariff policy shifts may translate into a variety of litigation exposures for consumer-facing companies. Whether the Fabletics or Coscto litigation ultimately prove to be the beginning of a broader trend remains to be seen.

Nevertheless, the case underscores how pricing decisions made in response to government trade policy may result in management liability exposure stemming from consumer protection claims, regulatory investigations, and derivative litigation implicating corporate governance and oversight.

As detailed in prior posts on this site (here and here), turbulence in the private credit markets has roiled the financial marketplace. Collapses (and related scandals) involving high profile private credit borrowers – including Tricolor and First Brands– have led to bankruptcies, civil lawsuits, and criminal indictments. The disruption in the private credit markets has also recently led to securities class action lawsuits involving private credit lenders. In the most recent example of this phenomenon, late last week a plaintiff shareholder filed a securities class action lawsuit against private credit lender Hercules Capital, after a short seller published a report suggesting that the company had misrepresented its borrower due diligence processes. A copy of the March 20, 2026, lawsuit can be found here.

Background

Private credit refers to non-bank lending, in which investors fund loans made directly to businesses or investors. Estimate vary, but some observers estimate that the private credit market had assets under management as of year end 2025 of as much as $3.5 trillion.

Hercules Capital is a private credit firm, operating as a Business Development Company (BDC) that specializes in making private loans to companies. The company describes itself as “the largest non-bank source of venture funding in the market.” As of year-end 2025, the company managed more than $5.7 billion in assets. Among other things, the company claims to maintain a “disciplined and robust deal origination process, including vigorous sourcing, due diligence, and valuation in order to maintain the value and stability of its portfolio.”

On February 27, 2026, Hunterbrook Media, which operates as the journalism arm of Hunterbrook Capital, a hedge fund that shorts the stock of companies being investigated, issued a report stating that a former Hercules employee had said that the company’s deal sourcing essentially consisted of simply copying the investments from the Google Ventures website, relying on other investors to have done the due diligence, instead of doing their own. The report also cited another former employee as saying that the company’s finance team was “a small, overstretched team with few checks in place.” The report also claimed that Hercules understated its significant exposure to the debt of software companies and that the company valued the software debt at 100 cents on the dollar even though the debt across the software industry was “falling into distressed territory.”

According to the complaint, the company’s share price declined nearly 8% on this news.

The Lawsuit

On March 20, 2026. A plaintiff shareholder filed a securities class action lawsuit in the Northern District of California against Hercules and certain of its directors and officers. The complaint purports to be filed on behalf of investors who purchased the securities of Hercules during the period May 1, 2025 through February 27, 2026.

The complaint alleges that during the class period, the defendants failed to disclose that: “(1) the Company overstated the due diligence with which it conducted its deal sourcing and/or loan origination process; (2) the Company overstated the due diligence with which it conducted its portfolio valuation process; (3) the Company reported misclassified portfolio investments; (4) as a result of the foregoing, the Company overstated and/or misrepresented its portfolio valuations; and (5) that as a result of the foregoing, Defendants’ positive statements about the Company’s business, operations, and prospects were materially misleading and/or lacked a reasonable basis.”

The complaint alleges that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint seeks to recover damages on behalf of the plaintiff class.

Discussion

As I noted at the outset, beginning late last year, a host of questions began to surround the private credit markets. According to a March 18, 2026, memo from the K&L Gates law firm (here), the financial press recently has reported on “a wave of investor withdrawals hitting major funds simultaneously, firms publicly announcing mark downs in the valuation of certain loans,” and that “various firms are capping redemptions to maintain adherence to pre-established limits.” Securities analysts have warned that the private credit sector “may be entering a ‘reckoning’ following years of ostensible aggressive lending and weaker underwriting standards.”

The short seller involved here delivered its report into this already febrile atmosphere, fraught as the industry already was with concerns that the industry growth may have been due to lax standards. The short seller’s report, attributing statements to anonymous ex-employees raising questions about the company’s lending processes and practices was sure to hit the company’s share price (which of course is the objective of a short seller putting out an attack report like the one involved here). Reasonable minds could differ about whether a manufactured share price drop of less than eight percent reflects a perception that confidence in the company has been entirely undercut, but it was at least a large enough drop to attract the attention of at least one plaintiffs’ law firm.

As I have detailed in previous posts on this site (most recently here), there are reasons why courts should be skeptical of securities class action lawsuits based solely on allegations from financially motivated short seller reports, particularly where the short seller reports are based solely on alleged statements of anonymous former employees. Indeed, some court have recognized these concerns; for example, the Ninth Circuit said in one recent case that “we should not credit anonymous posts on a website notorious for self-interested short-sellers trafficking in rumor for their own pecuniary gain.” All of these reasons for caution are present here, and undoubtedly will become relevant in this case at the motion to dismiss phase.

In any event, this case does represent the latest in a series of securities class action lawsuits filed against private credit lenders; there have already been several securities suits against private credit lenders.

For example, and as discussed here, in December 2025, Blue Owl Capital, one of the largest private credit lenders, was sued in a securities class action lawsuit, in a case alleging that Blue Owl and the other defendants misrepresented the firm’s liquidity, redemption conditions, and the merger risks involving its private credit vehicles. A different investor filed a separate lawsuit against Blue Owl in January 2026, as discussed here, alleging that the company had misrepresented the level of investor redemptions the company was facing.

In addition, as discussed in detail here, in early February 2026, a plaintiff shareholder filed a securities class action lawsuit against BlackRock TCP Capital Corp., the private credit arm of finance giant BlackRock, alleging that the company’s investments were not being appropriately valued and that the company’s unrealized losses were understated. Interestingly, the corporate defendant in that case, like the corporate defendant in the Hercules case, operated as a Business Development Company (as indeed to many of the private credit lending firms).

In addition, prior high profile corporate failures involving private credit borrowers — including for example, Tricolor and First Brands – have resulted in D&O claims against the firms and their executives, as discussed here and here.

Signs are that problems in the private credit market are likely to continue in the months ahead, with the potential for further securities litigation and other D&O claims against both private credit borrowers and private credit lenders.

There is also the possibility that the problems (and potential D&O claims) could spread beyond just the immediate private credit borrowers and lenders. As a recent Wall Street Journal article noted (here), the stock prices of traditional banks are also getting beat up over the problems in the private credit sector. The problem is that the private credit lenders are themselves borrowers, often from traditional banks. In light of the distress in the private credit markets, banks are reexamining their lending commitments to the private credit funds.

The Journal article attributed a recent drop in banks’ share prices to concerns that banks could be “left holding the bag” as the private credit market becomes increasingly disrupted. These concerns are heightened by revelations that some of the private credit loans (for example, with respect to Tricolor and First Brands), which were used to collateralize bank loans, were fraudulent. All of these questions arise at a time when some private credit funds, facing unexpectedly high redemption requests, are drawing further on their bank lines of credit.

In light of all of these factors, at least some observers have raised the question whether the problems in the private credit sector could become a banking industry contagion event, the possibility of which is even further heightened by the ever-lengthening list of adverse macroeconomic factors (such as inflation, the war in Iran, disruption to global trade due to U.S. tariffs, and so on).

The bottom line is that there is much more of this story to be told, and there appear to be reasons to be concerned that the story in the months ahead could involve further D&O claims related to the private credit sector.

Most readers have undoubtedly seen a recent and significant increase in attention paid to prediction markets, like Kalshi and Polymarket. The rise of prediction markets has also led to regulatory and other concerns.  But amid all the scrutiny, questions remain about what prediction market companies may represent as D&O risks. A newly filed securities complaint against a now-defunct crypto platform company may create new disclosure, governance, and insider-trading-related D&O exposures.

The Gemini Complaint

The putative securities class action, filed on March 18, 2026, in the Southern District of New York, alleges that Gemini Space Station, Inc. (Gemini), the crypto exchange founded by Cameron and Tyler Winklevoss, conducted a September 2025 IPO premised on its identity as a crypto exchange, emphasizing projected growth through increased trading activity, expanding users, and international expansion (Gemini Complaint).  According to Gemini’s shareholder plaintiffs, the company’s offering documents failed to disclose that its core crypto business was allegedly less viable than represented and that the company was at risk of a significant restructuring shortly after going public.

The Gemini Complaint further asserts that within months of the IPO, Gemini began moving toward a materially different business model. In December 2025, the company announced the launch of a prediction market product offering event contracts. According to the plaintiffs, however, this was not simply a new product line. By early February 2026, Gemini disclosed a broader transformation to what it called “Gemini 2.0,” which would place prediction markets “front and center,” reduce its workforce by approximately 25%, and exit key international markets it had previously described as central to its growth strategy.

At the same time, Gemini allegedly experienced a significant loss of senior leadership. The complaint alleges that Gemini’s Chief Financial Officer, Chief Operating Officer, and Chief Legal Officer all departed near the strategic pivot, with Gemini later linking those departures to the “Gemini 2.0” transformation.  The leadership exit was allegedly accompanied by disclosures of increased operating expenses and financial strain, which plaintiffs allege reflected the costs associated with restructuring and executive turnover.

The Gemini shareholder plaintiffs allege that the market reacted negatively. Following the February 2026 disclosures regarding the pivot to “Gemini 2.0” and the restructuring, Gemini’s stock price declined sharply, and analysts reportedly downgraded the company’s outlook, citing concerns about the abrupt change in strategy, leadership instability, and financial performance. The complaint further alleges that these disclosures revealed the “truth” about the company’s business prospects, giving rise to claims under Sections 11 and 15 of the Securities Act and Sections 10(b) and 20(a) of the Exchange Act.

Discussion

By way of brief background, prediction markets operate through the trading of event contracts, typically binary derivatives that pay out if a specified event occurs. Participants buy and sell “yes” or “no” contracts, and the contract price reflects the market’s collective belief about the probability of the event occurring.

An acceleration in prediction market use occurred after the September 6, 2024, ruling by the U.S. District Court for the District of Columbia which found in favor of KalshiEx LLC (“Kalshi”) and lifted a September 2023, CFTC order prohibiting Kalshi from allowing users of its platform to place bets on the outcome of upcoming U.S. congressional elections. Prior to the September 2023 order, Kalshi attempted to offer derivative event contracts that would allow participants to trade on the outcome of such elections.  

While the Gemini Complaint may appear to be a relatively conventional post-IPO securities class action involving alleged misstatements and omissions in offering documents, what makes the case notable is its connection to prediction markets. The complaint effectively frames the company’s pivot to a prediction-market-centric model as part of the alleged undisclosed risks facing the company at the time of the IPO. Prediction markets function as “information aggregation vehicles,” where contract pricing reflects the collective expectations of participants.

However, as  Columbia Law professor John C. Coffee Jr. recently noted, those expectations may not always be based solely on public information; they may instead reflect inputs from participants with superior, or even insider, knowledge. Thus, if prediction markets expand to include corporate-specific outcomes, such as executive departures, strategic pivots, or financial performance, they could create a form of external signaling that plaintiffs may attempt to use in securities litigation.

For example, if a prediction market begins to price in a high probability of a CEO’s departure while the company continues to emphasize leadership stability publicly, plaintiffs may argue that the company failed to disclose material information. If contracts tied to corporate leadership (such as whether a CEO will remain in position) become widely traded, they could create a new form of “shadow signaling” to investors. In the event of an unexpected executive departure or governance change, plaintiffs may attempt to use prediction market activity as circumstantial evidence that the company failed to disclose material information, reframing ordinary corporate developments as alleged Rule 10b-5 disclosure failures.

Potential claim scenarios could include a securities class action alleging that a company’s disclosure controls were deficient where prediction market pricing suggested a high likelihood of a CEO departure, yet the company continued to issue statements about leadership stability. Another possibility might be a derivative action asserting that the board failed to implement or monitor adequate controls around employee participation in prediction markets, particularly if insiders were later found to have traded contracts tied to corporate events.

While the Gemini Complaint does not allege use of prediction markets resulted in securities markets, the allegations of the lawsuit illustrate how a rapid and dramatic shift in business strategy, coupled with executive departures, can form the basis of securities claims that earlier disclosures were misleading. Notably, the complaint highlights how emerging technologies and business models may give rise to familiar categories of liability.

Still, the company’s pivot from a crypto exchange to a prediction market platform adds a new dimension, particularly as regulators continue to examine whether these platforms raise concerns related to market integrity, insider trading, and consumer protection. While prediction markets are still developing, the Gemini Complaint provides an initial example of a securities case tied to an effort to capitalize on this newly popular and scrutinized.

Following a rare trial in a federal securities class action lawsuit, a civil jury late last week found that statements Elon Musk made on social media in 2022 about his proposed $44 billion acquisition of Twitter misled investors. However, the jury also found that the plaintiff had not made the case that certain other statements by Musk were misleading. The jury’s verdict has a number of interesting implications, as discussed below. A copy of the jury’s March 20, 2026 verdict form can be found here.

The Twitter Acquisition

As detailed here, on April 14, 2022, Musk made an unsolicited offer to purchase Twitter. Twitter’s board’s initial moved to resist the deal, but on April 25, 2022, the company’s board voted unanimously to accept Musk’s buyout offer of $44 billion. However, shortly after the company agreed to the purchase, Musk began backing away from the deal.

In July 2022, Musk announced his intention to terminate the agreement, among other things claiming that the company had not upheld its agreement to crack down on spambot accounts. The company filed a lawsuit in Delaware Chancery Court against Musk seeking to enforce the deal. Trial in the company’s lawsuit against Musk was set for October 2022. Shortly befor trial in that case was set to take place, Musk announced he was prepared to go forward with the deal. Musk’s acquisition of Twitter closed on October 28, 2022.

The Securities Class Action Lawsuit

On October 10, 2022, Giuseppe Pampena, a Twitter shareholder, filed a securities class action lawsuit in the Northern District of California against Musk, alleging that in May 2022, during the turbulent period when Musk was starting to back away from the Twitter deal, Musk made a series of statements on Twitter and elsewhere, with the intent of depressing Twitter’s share price, in order to allow Musk to gain negotiating leverage or escape the deal.

The plaintiff’s amended complaint, which can be found here, refers to a series of four tweets Musk posted on Twitter, including in particular a May 13, 2022 tweet, in which Musk said that the deal was “temporarily on hold” because of disagreements with the company over the amount of bot traffic on Twitter’s platform; and a May 17, 2022 tweet, in which, among other things, Musk claimed that more than 20% of Twitter’s traffic came from fake accounts, and therefore that the deal “cannot move forward.” The amended complaint alleged that other statements Musk made, on Twitter and elsewhere, were also misleading.

The plaintiff essentially alleges that Musk made the allegedly misleading statements in order to drive down Twitter’s share price. The plaintiff alleges that Musk sought to depress Twitter’s price or to get out of the deal because he had agreed to sell some of his shares of Tesla to finance the Twitter deal, and after the Twitter deal was announced Tesla’s share price had dropped, meaning that the deal could require Musk to sell more shares of Tesla than he had planned.

The plaintiff represented a class of investors who sold Twitter’s stock or call options or sold put options between May 13, 2022, and October 4, 2022. The plaintiff basically alleged that they would not have sold their securities if they had been aware that Musk’s statements had manipulated the market price for the securities.

Musk moved to dismiss the plaintiff’s amended  complaint. In December 2023, Northern District of California Judge Charles R. Breyer denied the motion to dismiss in part as to certain of the allegedly misleading statements. In September 2024, Judge Breyer granted the plaintiff’s motion for class certification.

The Trial

Trial in the case commenced on March 2, 2026. During the trial Musk took the stand for two days, among other things acknowledging that the May 13 Tweet (“Twitter deal temporarily on hold…”) “may not be my wisest tweet.” According to Law360 (here), Musk testified that “the company had lied about the amount of spam and fake accounts on the platform but that he eventually paid the full $44 billion offer because a Delaware Chancery Court judge overseeing litigation about the sale was ‘extremely biased’ against him.”

During the trial, the lawyers involving on both sides of the Twitter deal testified. There were also, according to Law360, “moments of heated exchange” during the trial, including a March 6 dispute with “raised voices” and that ended with the Judge urging the lawyers to cool down and “gain composure.” The next day, Musk’s lawyers sought to have the Judge declare a mistrial, citing alleged “improper conduct” by the plaintiff’s lawyers, among other things. The court denied the motion.

The jury deliberated for over 20 hours over the course of four days before reaching its unanimous verdict.

The Verdict

The jurors returned a split verdict. The jury did find that plaintiff had sufficiently established that two of Musk’s tweets – the May 13 tweet (“deal temporarily on hold”) and May 17 tweet (deal “cannot move forward” because more than 20% of traffic is fake) – misled investors. However, the jury also found that the plaintiff had not sufficiently established his claims of an overall “scheme to defraud” Twitter investors, and that the plaintiff had not established that other statements by Musk were misleading.

The jury determined the value of shareholders’ losses, but it did not determine an aggregate or total amount of damages. Rather, the jurors were asked to determine the amount of damages incurred on each of the 98 trading days during the class period. The jury determined that the per-share, per-day damages across the period ranged between $3 and $8 dollars a day. In the Law360 article, one of the plaintiff’s lawyers is quoted as saying that the aggregate damages could total $2.6 billion.

The Law360 article quotes one of Musk’s counsel as saying that “we look forward to vindication on appeal.”

Discussion

As readers undoubtedly are aware, it is extremely rare for securities class action lawsuits to go to trial. Out of the more than 7,000 securities class action lawsuits that have been filed since 1995, fewer than 30 have gone to trial. The adverse jury verdict here and the potentially massive size of the total damages underscores why so many defendants decide not to risk a trial.

The outcome of this case arguably represents something of a rare court setback for Musk. Musk has in the past been dubbed in the press as “Teflon Elon.” Indeed, among the few securities class action lawsuits that have gone to trial in recent years was a one that involved Musk and his electric vehicle company, Tesla. (That case also involved an allegedly misleading tweet by Musk, involving his statement about an alleged plan to take Tesla private, with “funding secured.”) As discussed at length here, the jury trial in that earlier case resulted in a defense verdict.

This case and the earlier Tesla case do show how statements on social media can lead to securities class action litigation – and the verdict in this case shows how social media statements can lead to substantial liability under the securities laws. It certainly is no defense that “it was just a social media post.” This case outcome underscores the fact that if someone makes market moving statements, it can be the potential basis for liability, even if “only” made on social media. Musk tried to downplay the significance of his statements on social media, but the fact is that, even if on social media, statements can have consequences, and potentially legal implications.

The outcome of this case has obvious implications for corporate-communications policies; companies, particularly those with CEOs with substantial online followings, will want to consider executives’ use of social media, especially concerning sensitive or important company activities. In this case, Musk’s social media activities had consequences only for himself, not for any of his companies, but corporate executives’ social media activities could have significant ramifications for their companies.

Defense counsel, quoted in the Law360 article, refers to the trial outcome as a “bump in the road,” which arguably reflects a certain amount of bravado in the face of a largely adverse development. But there is some truth to the statement; as noteworthy as the verdict is, the trial itself was just another procedural stage in a case that may have a long way to go yet. The case will now go up on appeal (or will do so after all post-trial motions are addressed). The story of this case may have much more to be told.

There is a final element here, and arguably the thing that makes the trial verdict particularly interesting, and that is that it involves Elon Musk – a successful businessman, a widely recognized and even powerful individual, and supposedly the richest man in the world. No one, this outcome of this case seems to say, is above the law.

In the following guest post, Chris Quirk, a wholesale broker at ARC Excess & Surplus, now part of CRC Group, examines issues surrounding the provision of notice of circumstances that may give rise to a claim in connection with a claims made and reported insurance policy. Our thanks to Chris for allowing us to publish his article as a guest post on this site. Here is Chris’s article.

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In 193 BC, the Roman playwright Titus Maccius Plautus wrote: “Semper tu scito, flamma fumo est proxima,” which translates into English as: “Always remember, fire is very near to smoke.” In the management and professional liability context, the maxim is apt: potential claims, given enough time, often develop into formal claims.

How that reality intersects with an insured’s claims-made and reported policy can be a perilous source of coverage forfeiture for insureds who recognize that trouble may be brewing, but whose communications have not yet risen to the level of a formal claim. These insureds must pay close attention to whether, when, and how that information is communicated to insurers. Failure to navigate this process carefully may result in a coverage denial born not of the absence of merit, but of defects in procedure.

Broadly stated, the danger commonly appears in two forms:

1. The insured elects to file a Notice of Circumstances (NOC), but does so imperfectly; or
2. The insured fails to file a Notice of Circumstances when doing so is effectively mandatory.

A. Filing an Imperfect Notice of Circumstances

In Evanston Ins. Co. v. Frederick, 2025 U.S. Dist. LEXIS 142026, individual insureds found themselves without coverage even though a notice of circumstances had been filed and accepted by the insurer.

Evanston issued a D&O/EPLI policy to HRC Fertility for the policy period 8/29/2018–8/29/2019. On 3/14/2019, HRC Fertility became aware that a former employee (who had been terminated) might assert wrongful termination claims. HRC Fertility promptly submitted a notice of circumstances to Evanston, and Evanston accepted that notice. In the notice, however, only HRC Fertility was identified as the subject of the potential claim.

The policy expired on 8/29/2019, and the 90-day post-policy reporting period expired on 11/27/2019, with no claim having been made. On 12/4/2020, approximately one year after the end of the reporting period, the former employee filed a wrongful termination action naming HRC Fertility and several individual defendants. The claim was applied to the expired 18-19 policy through the previously accepted NOC.

Evanston agreed to provide coverage for HRC Fertility under the 2018–2019 policy but denied coverage for the individual defendants on a late-notice theory, notwithstanding that they were employees of HRC Fertility and otherwise qualified as insureds under the policy. In the ensuing declaratory judgment action, the U.S. District Court agreed with Evanston: the individual defendants were not properly noticed to the carrier until more than a year after the 90-day post-policy reporting period had expired, and where therefore excluded from coverage.

At first glance, the result appears puzzling. HRC Fertility had provided timely notice; Evanston had accepted it; and the individuals were insureds under the policy. Why, then, was coverage denied? The answer lies in HRC Fertility’s imperfect compliance with the policy’s notice-of-circumstances provision.

Evanston’s D&O/EPLI policy contained the following notice-of-circumstances provision (edited for brevity):

“With respect to any purchased Coverage Part, if … the Insured becomes aware of any circumstance that could give rise to a Claim against the Insured and gives written notice of such circumstance containing the information listed below to the Insurer … then any Claim subsequently arising therefrom shall be deemed … to have been first made on the date on which such written notice is received by the Insurer.
It is a condition precedent to the coverage afforded by this SECTION V B. that such written notice to the Insurer contain the following information:

1. A description and date of the Wrongful Act which could be alleged in the potential Claim;
2. The injury or damage which has or may result from such Wrongful Act;
3. The identity of the Insureds who may be the subject of the potential Claim;
4. The identity of potential claimants; and
5. The manner and time in which the Insureds first became aware of such circumstance or Wrongful Act.”

This provision imposes five specific requirements. Critically, item 3 requires the insured to identify and list the insureds who may be the subject of the potential claim, that is, the potential defendants.

The HRC Fertility NOC identified only HRC Fertility as a potential defendant under item 3. The individual employees were not identified as potential defendants in response to that requirement. The first time they were presented to Evanston as defendants, potential or actual, was when the complaint was filed on 12/4/2020. Because they were omitted from the NOC, the individual defendants did not benefit from the NOC’s claims-made filing date of 3/14/2019, and were instead treated as first noticed on 12/4/2020—well after the reporting window had closed.

In practical terms, the individuals had a claims-made date of 12/4/2020 under a policy whose post-policy reporting period had expired on 11/27/2019. The fact that they otherwise qualified as insureds did not cure the notice defect. Because they were not listed in the NOC as potential defendants as required by item 3, they were not entitled to the 3/14/2019 claims-made filing date.

As the court explained, the burden rests with the insured to comply with the policy’s reporting requirements; the insurer has no duty to supplement an incomplete notice or infer what was not properly reported:

“Moreover, [w]ithout having received the written notice which would trigger coverage under [this] provision, the insurer had no duty to inquire on its own of circumstances that might give rise to a claim, and it cannot be charged with constructive notice of circumstances it had no duty to investigate. …  Because the evidence shows the Physician Defendants did not comply with the Policy’s reporting requirements, the Physician Defendants cannot receive coverage. “

It is important to recognize that HRC Fertility’s predicament was, in a meaningful sense, self-inflicted.

HRC was not obligated to file a notice of circumstances under this policy. Had it declined to file an NOC and instead reported the claim when it was actually made in December 2020, the then-current policy would have responded, and all insureds (including the individual defendants) would have been eligible for coverage under that in-force policy (subject, of course, to its terms and exclusions).

By electing to file an NOC, however, HRC Fertility voluntarily subjected itself to a technical procedure that carried strict conditions, among them, the requirement to identify all insureds who might be the subject of the potential claim. Once Evanston accepted the NOC, the later claim became tethered to the earlier policy. The failure to identify the individuals as potential defendants in the NOC, as the policy required, prevented them from having a claims-made filing date within the policy’s reporting period. Subsequently, they were excluded from coverage due to late notice.

This is a recurring lesson in claims-made coverage: noncompliance with policy conditions is a common cause of coverage denials. The insured elected to invoke the optional notice of circumstances clause, failed to comply with it precisely, and therefore the individual insureds forfeited coverage.

B. Failing to File an NOC When It Becomes Mandatory

Although NOCs are often optional, there are situations in which they become effectively mandatory. In those circumstances, insureds must handle notice requirements with exceptional care.

1. Policies with a mandatory NOC clause

Some policy forms use mandatory language. Instead of an optional “if … then” clause, they provide that if the insured becomes aware of circumstances that may give rise to a claim, the insured must provide notice before expiration. Clauses of this type operate like tripwires: if overlooked or mishandled, they will cause coverage forfeiture on a later date. Courts, however, will generally enforce them as written.

2. Warranties of no known circumstances on renewal

Some carriers require insureds to sign renewal warranties stating that they are unaware of any circumstances that may give rise to a claim. This can convert an otherwise optional NOC clause into a de facto mandatory one.

• If the insured is aware of a circumstance but signs a warranty stating otherwise, coverage for a future claim may be lost due to breach of warranty, even if the NOC clause itself is nominally optional.
• In practice, this creates the same functional result as a mandatory notice requirement: the insured must either (a) disclose and notice the circumstance, or (b) risk losing coverage later.

3. Moving coverage to a new carrier

Warranty issues arise particularly often when changing insurers. In D&O placements, an experienced broker may be able to negotiate away warranties in favorable markets, but for E&O and cyber placements, incoming carriers are often less willing to waive them.

When moving to a new carrier, especially where new applications and warranties are required as pre-bind or post-bind subjectivities, insureds must carefully evaluate what they are warranting, and whether any potential circumstances should be noticed to the expiring policy before binding the replacement coverage.

Failure to properly navigate switching carriers led to coverage forfeiture in Ironshore Specialty Ins. Co. v. Callister, 2017 U.S. Dist. LEXIS 210973.

In 2010, insured law firm Callister, Nebeker & McCullough (“Callister”) performed legal services for its client Hoyt Stephenson with respect to an ERISA-related transaction. From 2009 to 2013, and during the period of the alleged malpractice, Callister carried E&O coverage through Ironshore. Beginning in 2013, Callister was insured by Old Republic.

When Callister switched carriers to Old Republic in 2013, it completed a new business application containing warranty questions. In those warranties, Callister disclosed a potential matter. As the district court recounted:

“Question 30(a) asks whether the applicant knows “of any acts, errors, omissions or circumstances that could reasonably give rise to a professional liability claim against the applicant.” When completing its application, Callister answered this question “Yes” and referred to an attached explanation that listed the “Issue/Claimant” as “National Finance Systems/Hoyt Stephensen” and noted it was “Active.” Callister wrote in the summary that Ironshore (its carrier at the time) “has not been notified as no claim has been asserted against the Firm” and that the matter involved an “[a]lleged error in documenting ERISA-related transaction.” Question 30(b) asks whether the above-listed matter had been reported to the applicant’s current or former insurer. Callister answered “Yes” and stated, “Concurrently, or immediately succeeding this application, written notice will be given to the current insurer.” Beneath Question 30(b) is a prominent disclaimer that reads, in bold, “NOTICE: THE POLICY BEING APPLIED FOR WILL NOT PROVIDE COVERAGE FOR ANY CLAIM ARISING OUT OF THE MATTERS REQUIRED TO BE LISTED IN 30(a) AND 30(b) ABOVE.”

In February 2014, Hoyt Stephensen filed suit against Callister. Both Ironshore and Old Republic denied the claim.

With respect to Ironshore, Callister had not formally submitted a notice of circumstances in accordance with the policy; instead, it had disclosed the potential claim only through renewal applications. The district court upheld Ironshore’s denial, emphasizing strict compliance with the policy’s notice requirements:

“The primary dispute between Callister and Ironshore concerns whether Callister gave proper notice of the potential claim. Ironshore argues that Callister was required to strictly comply with the notice provision in the policy, which Callister does not dispute that it failed to do. … As the insured of a claims-made policy, Callister needed to strictly comply with the notice provision in the policy. Because it notified Ironshore of a potential claim only in renewal applications, and not in a formal notice of a potential claim, Callister has not strictly complied.”

With respect to Old Republic, coverage was barred by the application disclaimer language, which operated functionally as a prior-knowledge exclusion:

“Callister listed the “[a]lleged error in documenting ERISA-related transaction” in response to Question 30(a)’s prompt about “any acts, errors, omissions or circumstances that could reasonably give rise to a professional liability claim against the applicant. … Old Republic’s policy thus excludes the malpractice suit, and Old Republic does not have a duty to defend.”

The result is a classic “gap” scenario: the expiring carrier denied coverage because the insured failed to fully comply with the requirements of the expiring policy, while the incoming carrier denied coverage because the matter was disclosed and expressly carved out in the application process.

When filing a notice of circumstance becomes mandatory, whether by policy wording or warranty, judicious compliance with the policy’s notice of circumstances clause is imperative.

Benefits and Drawbacks of Filing an NOC

Electing to file an NOC when not required is not a trivial decision. Insureds should weigh the potential advantages against the significant technical and administrative risks the election creates.

Potential benefits

• Preservation of future limits
  If a claim materializes later, it will erode the limits of the earlier policy (when the NOC was filed) rather than the then-current policy.
• Potential access to superior terms and conditions
  If the policy in force when the NOC is filed has broader coverage than a later policy (for example, fewer exclusions, broader definitions, or more favorable sublimits), a future claim tied back through the NOC may be governed by the superior wording. The inverse is equally true: if the later policy is broader, filing the NOC may tether the claim to a more restrictive form. This can be employed strategically should an Insured anticipate that its future coverage will materially worsen.
• Facilitating a more competitive renewal or remarketing process during an ongoing circumstance
  Filing a NOC on an existing policy for an ongoing circumstance may invite superior renewal options from competing insurers.  A good example is a publicly traded company facing difficult renewal conditions (for example, after a significant stock-price decline). Incumbent insurers may seek higher premiums or tighter terms due to perceived heightened claim risk, while competing insurers may hesitate to quote aggressively for fear of inheriting that exposure. If the insured notices the circumstance (in the example case, the stock decline) to the incumbent carrier(s) before expiration, competing insurers may be more willing to quote competitively because expiring insurers will be stuck holding the bag should the circumstance lead to a claim. This approach can, however, damage relationships with insurers and should be considered carefully.

Material drawbacks

• Strict compliance risk
  If the insured fails to satisfy every element of the notice requirement, coverage may be jeopardized or lost. That is the central lesson of the cases discussed above. Because filing an NOC is often optional, the insured voluntarily assumes this strict-compliance risk. Absent a clear and concrete benefit, there is a substantial argument against filing.
• Administrative burden and the need for acceptance letters
  Filing an NOC creates administrative obligations. The insured should obtain both (1) an acknowledgment of receipt and, more importantly, (2) a written letter of acceptance confirming that the filing qualifies as a valid notice of circumstances under the policy. If the file does not contain a letter of acceptance, the insured should not assume the notice is effective.

This matters because many D&O/E&O policies contain prior notice or “matters noticed” exclusions. If an insured submits an NOC that is never formally accepted, a coverage gap can result: the prior policy may not respond because the carrier never accepted the NOC, while the subsequent policy may not respond because the matter was (or was attempted to be) noticed under a prior policy and is therefore excluded.

In that sense, filing an NOC can expose insureds to technical and administrative landmines that produce a worse outcome than doing nothing.

Conclusion

Filing a notice of circumstances under a claims-made policy is not a ministerial act; it is a technically demanding, high-stakes coverage election. It may confer real advantages, but it also introduces substantial legal and administrative risk. Courts routinely decline to cure procedural defects in order to rescue insureds from coverage denials.

Where NOCs are mandatory, whether by policy language, or by warranty, insureds must strictly comply with policy requirements and obtain written acknowledgment and acceptance from the insurer. When NOCs require insureds to predict potential defendants of a future claim, as it did in HRC Fertility’s case, the only way to strictly comply would be to submit a laundry list of names for every person or legal entity connected to the matter and submit them as potential defendants. Where NOCs are optional, insureds should consider carefully whether the anticipated benefit justifies the added risk.

Crypto asset investors and issuers alike have long sought greater clarification on questions surrounding the actual or potential applicability of the federal securities laws to digital assets. SEC Chair Paul Atkins previously declared his intent to provide relevant guidance. Now, the SEC, acting in conjunction with the Commodities Futures Trading Commission, has issued detailed guidance segmenting digital assets between those to which the securities laws apply and those to which the laws do not apply, as well as clarifying under what circumstances digital assets can become subject to the securities laws. The agencies’ clarifications will provide significant illumination for investors and issuers, and at least potentially for D&O insurance underwriters as well.

The SEC’s March 17, 2026, press release about the new digital assets guidance can be found here. The SEC’s March 17, 2026, Interpretive Guidance can be found here. The SEC’s March 17, 2026, Fact Sheet about the new Guidance can be found here.

Background

Digital assets such as cryptocurrencies are of course not new. They have been part of the financial scene for over a decade. Up until now, the SEC, as well as digital asset issuers and investors, have generally looked to the standards the U.S. Supreme Court described in its 1946 decision SEC v. W.J. Howey to determine whether or not cryptocurrencies and other digital assets, as well as transactions in those assets, are subject to the federal securities laws.

Applying the Howey test to digital assets has proven to be a contentious, fact-intensive process, arguably resulting in significant legal ambiguity. Moreover, the application of the Howey test within individual enforcement actions has led to criticism of the SEC — under the prior administration — for engaging “regulation by enforcement.”

Because of concerns about the regulatory approach the government has taken toward digital assets in the past, as well as public input provided to the SEC’s Crypto Task Force, the agency has now issued the updated guidance on digital assets and the securities laws.

The Agencies’ Interpretive Guidance

The interpretation set out in the guidance is, according to the SEC’s Fact Sheet about the guidance, intended to provide “greater clarity regarding the Commission’s treatment of crypto assets and complements Congressional efforts to codify comprehensive crypto market structure framework into statute.”

The key to the new guidance is the “framework” the document uses, described in the document as a “token taxonomy.” The document categorizes digital assets into five groups: digital commodities; digital collectibles; digital tools; stablecoins; and digital securities. The meaning of the titles of each of the five categories is described in the SEC’s Fact Sheet. Stablecoins, which maintain a consistent value, often at one dollar because the value is fully backed by currency or equivalents,  are already carved out from the securities laws by the GENIUS Act, which was enacted last summer.

The guidance document specifies that in the agencies’ view, most crypto assets are not themselves securities – of the five categories in the taxonomy, only the category denominated as “digital securities” are, according to the guidance document, subject to the federal securities laws.

Importantly, a non-security digital asset can become subject to the securities laws if it is offered or promoted in a way that constitutes an investment contract – for example, when purchasers are led to expect profits based on the issuer’s managerial or entrepreneurial efforts. The agency’s guidance provides clarification on how a non-security asset can become subject to an investment contract and also provides clarification of how a non-security crypto asset ceases to be subject to an investment contract.

The agency’s guidance document also provides interpretation of several kinds of crypto-adjacent activities that previously fell into regulatory grey areas. Among other things, the document clarifies when an airdrop may trigger securities law obligations. (In general, the agency’s position is that airdrops do not involve an “investment of money” under the Howey standards.) The document also confirms that protocol mining and staking  and wrapping do not constitute securities transactions.

In addition to the agency’s release of the crypto asset guidance, the SEC’s Chair, Paul Atkins, in a March 17, 2026, speech at the DC Blockchain summit, also announced other SEC digital asset initiatives.

Among other things, Atkins identified several digital asset  “safe harbors” that the agency hopes to be announcing in coming months, including a “startup exemption,” providing a time-limited registration exemption for crypto asset contract offerings; a “fundraising exemption,” with a high fundraising ceiling during a specified period, with more extensive disclosure requirements; and a safe harbor from the definition of security, that would apply once an issuer has fulfilled all the obligations it made under its investment contract offering, with the objective of giving greater certainty about when a crypto asset is not subject any longer to the federal securities laws.”

Discussion

The SEC’s new crypto asset guidance is intended to provide clarity for crypto asset issuers and investors. Among other things, the guidance seeks to provide clarity on whether certain crypto assets are securities (although I question whether this clarity is the same as certainty, as discussed below). The guidance also provides clarity around certain common crypto adjacent activities, such as airdrops, staking, and crypto asset wrapping. The agency’s clarification about when a non-security crypto asset can become a security may be particularly welcome for certain crypto issuers.

The clarity around classifications between and among various digital asset classes could provide lower compliance risks (and costs) for issuers and a more predictable trading environment, which would be a benefit both for issuers and investors.

It will be interesting, to me at least, to see what D&O insurance underwriters make of these changes. Crypto assets and crypto asset firms have, in general, and for most insurers, been somewhere between a disfavored class of business and a no-fly zone. In part, this has been because of the lack of clarity around the applicability of the securities laws. Some carriers, or at least some opportunistic carriers, may see the new guidelines as the signal to get into a class of business that still carries outsized premiums.

Although the new guidelines represent a creditable attempt to provide clarity for a context in which there has in the past been little, I wonder whether the new guidelines will reduce the risks of regulatory disputes or merely shift the battle lines. For example, whether or not the securities laws apply still depend on how the digital assets in question are categorized. I could easily see disputes arising whether any given digital asset is “digital security” to which the securities laws apply or is a non-security crypto asset to which the securities apply.

Another question in the wake of the issuance of the guidance is the legal significance of the agencies’ guidance. For example, if a subsequent private litigant takes the position that the securities laws apply to the issuance or trading of a particular digital asset, will the court look to the SEC’s guidance, or will it rather go back to interpreting the applicability the Howey test, regardless of what the SEC has said that its own enforcement policy should be?  What legal effect does/should the agencies’ guidance have? (Side note: I understand that the SEC will in the near future submit a proposed rule for public comment, meaning that the guidance could be upgraded to an agency rule, which clearly could upgrade the significance of the agency’s stance on these issues.)  

Then there is the question of whether all of this represents good policy. From the perspective of investor protection, should the SEC be taking what can only be described as a hands-off approach to digital assets? (Side note: I think the policy debate arguably is different with respect to stablecoins than with respect to the other classes of digital assets.)

With respect to the policy question, it is relevant to note that this development – that is, the SEC’s issuance of this kind of guidance regarding digital assets — was both predictable and consistent with the current Trump administration’s overall policy on crypto generally. Indeed, on January 23, 2025 (that is, just days after President Trump’s second inauguration), the White House issued Executive Order 14067, which, among other things, said that it was the administration’s goal to make the U.S. the “crypto capital of the world,” by promoting deregulation. (For a more detailed look at the current Trump administration and crypto assets, please refer here.)

As you consider the policy question, it is worth keeping in mind that crypto and digital asset companies, through their political action committee, made political contributions of $245 million during the 2024 elections. And some might also consider it relevant to note that prior to his confirmation as SEC Chair in 2025, Atkins served as CEO of Patomak Global Partners, a role in which he advised, among others, digital asset companies on regulatory strategy and crypto asset policy, and he also served as Co-Chairman of the Digital Chamber’s Token Alliance starting in 2017.

So, again, looked at from the perspective of investor protection, is all of this good policy?

It has now been several years since the peak of the SPAC boom, but litigation from that period continues to work its way through the courts. One of the ongoing cases, involving a 2020 SPAC transaction, involves the question of when the applicable three-year statute of limitations begins to run.

On February 10, 2026, the Delaware Supreme Court issued its ruling affirming the Delaware Chancery Court’s decision that the standard three‑year statute of limitations applies to fiduciary duty and related claims arising from de‑SPAC transactions. In rejecting arguments for a longer period, the Court reaffirmed Delaware’s long‑standing approach that the limitations clock starts when the alleged wrongful conduct occurs, not when its effects are later discovered. 

The following discusses the GigCapital2 litigation and decision in more detail, including considerations for D&O underwriters of SPAC risks.

The GigCapital2 Litigation

GigCapital2, a healthcare-focused SPAC, completed a two-step de-SPAC transaction in late 2020 and mid-2021 that combined Cloudbreak Health, a telehealth company, with UpHealth Holdings, a portfolio of healthcare businesses. The combined public company filed for bankruptcy in 2023. According to the Delaware Chancery Court’s Opinion, now under appeal, in September 2024, former Cloudbreak equity holders (Cloudbreak plaintiffs) filed their lawsuit against SPAC entities and insiders, as well as the financial advisor involved in the de-SPAC transaction.

The Cloudbreak plaintiffs alleged that they were misled into approving the transaction by inflated financials, misleading diligence materials, and concealed conflicts, including alleged misconduct by the SPAC sponsor, management, and financial advisor (Gig2 defendants). In its July 25, 2025, Memorandum Opinion, the Delaware Court of Chancery dismissed the Cloudbreak plaintiffs’ complaint in full.  Among other grounds, the court held that many of the tort claims were time-barred because they accrued no later than November 2020, when the business combination agreements were executed, and the alleged misrepresentations were made.

In particular, the court rejected the Cloudbreak plaintiffs’ argument that accrual should be tied to the June 2021 closing of the de-SPAC transaction. Applying Delaware’s long-standing “occurrence rule,” the court reasoned that a cause of action accrues at the time of the wrongful act that causes injury, not when damages are fully realized or when a transaction later becomes irrevocable. Thus, the Delaware Chancery Court held that any legally cognizable injury occurred when the plaintiffs allegedly relied on misleading information to approve the transaction documents, not when the deal later closed. Without reaching the substance of the fraud and misrepresentation allegations, the court dismissed the complaint.

On appeal, the Cloudbreak plaintiffs reframed the issue of when the statute of limitations began to run as a misapplication of Delaware tort law rather than a disagreement over facts. According to the Cloudbreak plaintiffs, Delaware law distinguishes between the making of a misrepresentation and the occurrence of injury. In a multi-step transaction like a SPAC de-SPAC, they argue, injury does not occur until reliance becomes irreversible, at the member vote or closing, when investors are locked into the deal and exposed to its economic consequences.

Notably, the Cloudbreak plaintiffs’ appeal emphasizes the structural features of SPAC transactions that complicate traditional accrual analysis: extended timelines between signing and closing, layered approvals, redemption mechanics, and sponsor incentives that may not fully crystallize until late in the process. Thus, from the equity holders’ perspective, tying accruals to early-stage representations effectively immunizes misconduct that only becomes harmful once the transaction is consummated.

In their answer to the Cloudbreak plaintiffs’ appeal, the SPAC Defendants counter that the plaintiffs’ theory would undermine Delaware’s occurrence rule and dramatically extend limitations periods in sophisticated M&A transactions. They warn that allowing accrual to wait until closing, or later discovery, would convert nearly every failed de-SPAC into a potential long-tail tort claim, regardless of how much diligence was conducted or how many contractual protections were negotiated.

Discussion

The Delaware Supreme Court, by affirming that the standard three‑year statute of limitations in the GigCapital2 litigation and declining to recognize a longer limitations period, kept intact Delaware’s long‑standing approach that the statute begins to run when the alleged wrongful act occurs, not when subsequent harm is discovered.

Moreover, in rejecting the Cloudbreak plaintiff’s calls to extend the time for the de-SPAC shareholders to sue, Delaware appeared to favor certainty and finality in certain corporate governance disputes, even in the face of varying timelines that may be present in SPAC‑related transactions. While the Delaware Supreme Court’s decision may limit some late‑filed shareholder claims, the GigCapital2 litigation may also provide lessons for SPAC participants, directors and officers, and their D&O insurers.

First, the GigCapital2 litigation highlights the importance of transaction‑stage diligence and documentation. Because the statute of limitations clock was found to start the time of the alleged conduct, transaction disclosures and approvals by stakeholders may require additional review, to confirm certain deal terms are well‑supported at the time of de-SPAC closure. Second, Delaware Court’s decision may narrow the window of potential exposure, but perhaps shifts the focus on early risk identification, especially when shareholders are unable to bring suit if deal issues emerge later.

From a D&O insurance perspective, the GigCapital2 litigation may also reinforce timing and coverage trigger mechanics in SPAC coverage programs.  The Cloudbreak plaintiff’s arguments highlight that, for SPAC transactions, extended reporting (tail) coverage through the de‑SPAC merger, and into the operating company phase, could be a central issue should a claim arising out of the transaction be made. The enforcement of Delaware’s standard statute of limitations could further limit long‑tail exposure, but it may result in delayed claims falling outside of coverage if reporting or discovery obligations are not timely addressed.

The Delaware Supreme Court’s decision in the GigCapital2 litigation ultimately provides clarity for when a claim involving a de-SPAC needs to be brought, and less concern that a complicated transactions may extend the statute of limitations. The GigCapital2 litigation ruling seemed a nod to Delaware’s preference for applying established corporate law principles to emerging business structures rather than creating new procedural exceptions.

Thus, for SPAC‑related litigation, claims will continue to be evaluated under familiar fiduciary duty and disclosure frameworks, with the same procedural boundaries that have long defined Delaware’s corporate law landscape.  For D&O insurers of SPAC risks, the Gig2Capital litigation and Delaware Supreme Court decision reinforces that exposure resulting from de-SPAC transactions will likely be impacted by Delaware’s firm three‑year filing window.

The number of accounting-related securities class action lawsuit filings declined in 2025, but the value of accounting-related securities suit settlements increased during the year, according to the latest annual report on the accounting suits from Cornerstone Research. The report, which is entitled “Accounting Class Action Filings and Settlements – 2025 Review and Analysis” can be found here. Cornerstone Research’s March 18, 2026, press release about the report can be found here.

The report defines “accounting case filings” and “accounting cases” as securities class action lawsuits that involve allegations made in the first identified complaint (FIC) of GAAP violations or violations of other reporting standards, auditing violations, or weaknesses in internal controls over financial reporting.

According to the report, there were 34 accounting case filings in 2025, representing 17% of all 2025 securities suit filings, compared to 57 in 2024, representing 26% of all 2024 securities suit filings. The 34 accounting suit filings in 2025 represents a 40% decline compared to the 57 accounting suit filings in 2024, a much larger decline than the 9% decrease in the overall number of securities suit filings in 2025 compared to 2024. The 34 accounting suit filings in 2025 were also approximately 42% below the 2016-2024 average number of accounting case filings of 59. The 2025 accounting case filings in 2025 were at the lowest level both by count and as a proportion of all securities suit filings during the year since Cornerstone Research began tracking the cases in 2004.

The most common accounting related allegation alleged in the 2025 accounting-related cases was allegations of asset valuation and/or impairments, for the second year in a row, compared to prior years in which revenue recognition was the most common allegation. There were seven accounting cases in 2025 involving a restatement, representing a 50% decrease from the 14 restatement cases filed in 2024, and well below the average number of cases involving restatements during the period 2016-2024 (15). The seven restatement cases in 2025 was the lowest number of restatement cases since 2021 (5), and the second-lowest number since tracking began.

Accounting cases tend to be filed more quickly than non-accounting cases, as measured by the number of days between the end of the class period and the initial filing date (described in the report as the “filing lag”). The median filing lag for 2025 accounting cases was 25 days, compared to 38 days for non-accounting cases. The report notes that over the past ten years, accounting cases that were filed more quickly (that is, with a shorter filing lag) were more likely to be dismissed. From 2016 to 2024, the median filing lag for accounting cases that were dismissed was 16 days, compared to 29 days for accounting cases that are ongoing.

Accounting-related cases are less likely than non-accounting cases to be dismissed but more likely to be settled. On average, accounting cases filed during the period 2016 through 2023 have a 13% lower dismissal rate through three years than non-accounting cases. For cases filed during the period 2021 through 2024, 29% of accounting cases settled, compared to 19% of non-accounting cases.

As measured by the decline in market capitalization involved in the case, the value of the accounting cases filed in 2025 was well below recent years. The market capitalization decline is measured by using an annual aggregate of Disclosure Dollar Loss (DDL), which represents the dollar-value change between the trading day immediately preceding the end of the class period and the trading day immediately following the end of the class period. The aggregate DDL for accounting cases in 2025 was $28.1 billion, compared to the $46.8 billion in 2024, and 50% below the 2016-2024 accounting case annual aggregate DDL of $56.2 billion.

According to the report, many of the accounting allegations that ultimately are asserted in accounting cases are not made in the initial complaint. About 44% of accounting case settlements included allegations of GAAP violations that were not made in the first identified complaint.

The number of accounting case settlements in 2025 (35) was level with the number of accounting case settlements in the two prior years. However, the aggregate, average, and median settlements of accounting cases increased in 2025 compared to 2024. The total value of accounting case settlements in 2025 increased to approximately $1.5 billion, up 40% from $1.1 billion in 2024. The 2025 accounting settlements represented 51% of the total value of the all 2025 securities suit settlements. The average accounting case settlement amount increased in 2025 to $43.5 million, an increase of 40% over the 2024 average of $31.0 million, and the median accounting case settlement in 2025 was $17.1 million, representing a 38% in increase over the 2024 median of $12.3 million.

For D&O insurance underwriters, there is a great deal of information in this report. It is worth reading at length and in full. As a general matter, the report tends to confirm standard underwriting assumptions – that is, the cases with accounting allegations are incrementally more dangerous than cases without accounting allegations. The accounting cases are less likely to be dismissed, more likely to settle, and arguably more expensive to settle as well.