In the following guest post, Ben Dubin, Managing Memberof VC Expert Services, LLC, examines Vice Chancellor Laster’s May 2026 opinion in the Zync v. Porsche case, a decision that highlights the legal and D&O insurance risks for investor-appointed directors and their sponsoring venture firms, particularly when directors are accused of acting as agents of the investor rather than exercising independent fiduciary judgment on behalf of the company. This post is the second of two guest post from Ben discussing D&O risks associated with venture capital board seats. Ben’s prior post on the topic can be found here. We would like to thank Ben for allowing us to publish his articles as guest posts on this site. Here is Ben’s article.

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A recent Delaware Court of Chancery decision raises difficult questions about investor-appointed directors, aiding-and-abetting exposure for the appointing investor, and whether either of two D&O insurance programs responds when the alleged wrong is serving the investor rather than the company.

I. The Financing That Never Happened

A venture board seat is usually understood as a mechanism for protecting an investment. In Zync, Inc. v. Porsche Investments Management, S.A., the complaint alleges that a board seat became the mechanism through which an investment destroyed the company.^[1] On May 29, 2026, Vice Chancellor J. Travis Laster of the Delaware Court of Chancery denied the Rule 12(b)(6) motions filed by the Porsche entities and their board designee, allowing all four counts of the complaint to proceed against them.

The story the complaint tells is simple. Zync, a startup offering a cloud-based platform for in-vehicle entertainment, was running out of cash. An outside venture fund proposed to lead an $8 million Series A at a $32 million pre-money valuation; investor demand expanded the round to $10 million at $40 million. The financing required the approval of the director designated by Porsche, the company’s strategic investor. According to the complaint, the designee would not act without instructions from his superior at Porsche. Months passed. When the board finally convened in April 2022, the designee announced that he would vote against the financing, killing the round. A later private equity proposal — restructured as a $4 million loan followed by a $15 million equity investment at a $60 million pre-money valuation, including $3.335 million to buy out Porsche at a premium — collapsed after Porsche allegedly conditioned approval on the fund indemnifying both Porsche and its designee. The company shut down.

At first glance, the dispute looks like a familiar Delaware fiduciary-duty case. For the D&O insurance community, it poses a more complicated question: whose policy protects an investor-appointed director when the alleged wrong consists of serving the investor rather than the company?

II. The Investment and the Governance Rights

Porsche invested $2.9 million through a convertible note and received common shares representing five percent of Zync’s fully diluted equity. A voting agreement committed the company to a three-member board and gave Porsche the right to designate one director for as long as Porsche held at least two percent of the common stock. An investor rights agreement provided that the company could not take specified actions — including issuing equity or debt securities, effecting a merger or dissolution, amending the charter, changing the size of the board, or entering into related-party arrangements — without the approval of the Porsche-designated director.

That structure deserves attention — not because it is exotic, but because it is not. Conventional venture financings typically layer two kinds of blocking rights: protective provisions in the charter, framed as class or series consent rights and exercised by the preferred holders at the stockholder level, and a covenant in the investor rights agreement — the National Venture Capital Association’s model form titles it “Matters Requiring Investor Director Approval” — conditioning specified corporate actions on the approval of the investor’s designated director. Zync’s blocking rights, as the opinion describes them, ran through the second mechanism. The distinction matters because the two instruments sit in very different doctrinal postures. A preferred stockholder granting or withholding consent may ordinarily consider its own interests. A director granting or withholding approval acts as a person who simultaneously owes undiluted fiduciary duties to the company — and, as the court noted, the designee’s exercise of the approval right can be imputed to the appointing investor under ordinary agency principles. Zync is, among other things, a reminder that a standard piece of venture architecture places a powerful veto in fiduciary hands.

Three roles were in play. Porsche was a contractual counterparty with consent rights, generally free to act in its own interest. Porsche’s employee was a Zync director, who was not. And the same individual remained an employee accountable to Porsche management. The collision among those roles drives both the liability analysis and the insurance questions that follow.

III. The Allegations and the Court’s Decision

The decision came at the pleading stage. The court was required to credit the complaint’s well-pleaded allegations and draw all reasonable inferences in the plaintiff’s favor. Nothing has been proven, and the defendants dispute the claims.

Porsche designated Christian Knörle, an executive within Porsche’s venture organization who reported to a managing director of Porsche Investments. The complaint alleges that Knörle repeatedly refused to approve financings without authorization from Porsche; that he delayed board action for months while awaiting instructions; that he conditioned a promised Porsche bridge loan — which shrank from a suggested $750,000 to $290,000 before being withdrawn in favor of demands for a personal guarantee from the founder and an additional board seat — on the company sharing its confidential draft agreement with Mercedes-Benz and internal data concerning other competitors; and that, after the company’s bridge lender sued, he resigned from the board on Porsche’s instruction.

The court held that these allegations state a claim against Knörle for breach of the duty of loyalty. Two features of the analysis stand out.

First, the dual-fiduciary problem. Delaware recognizes “no dilution” of the duty of loyalty where one person holds dual or multiple fiduciary roles.^[2] As a director, Knörle owed fiduciary duties to Zync; as an employee — and therefore an agent — he owed duties to Porsche. When Porsche’s interests diverged from the company’s, it was reasonably conceivable that Knörle faced a disabling conflict, and that he resolved it in Porsche’s favor. The court rejected the argument that Porsche’s note and equity positions aligned its interests with the company’s, reasoning that the complaint adequately alleged competitive incentives: Porsche could benefit more from keeping the company’s technology away from Mercedes and BMW than it would lose by writing off a comparatively small investment. “Chess players make sacrifices all the time,” the court observed.

Second, inaction. The defendants argued that Knörle could not have breached his duties because neither financing was formally put to a vote. The court disagreed: directors can breach their duties through informal action and conscious inaction, and a designee’s refusal to act without investor permission may itself become the fiduciary act under review.^[3] In venture governance, in other words, inaction is not necessarily neutral.

The court also sustained three claims against the Porsche entities: aiding and abetting Knörle’s alleged breaches, intentional interference with the two prospective financings, and breach of the implied covenant of good faith and fair dealing inherent in the investor rights agreement. (A Porsche executive named individually was dismissed for lack of personal jurisdiction in a separate decision issued three days earlier.)^[4]

IV. The Two-Masters Problem

Investor-appointed directors routinely occupy overlapping roles: portfolio-company fiduciary, fund partner or employee, investment-committee participant, monitor of the investment, and — in corporate venture capital — employee of a commercial partner or potential competitor. None of that is improper in itself. Delaware permits directors to consult with the stockholders who designated them and to take their concerns into account, and the Zync opinion cites recent authority acknowledging exactly that.

What the opinion does not countenance is the pattern the complaint alleges: a designee who treated the investor’s instructions as controlling. Venture organizations often speak of “their” board seats and “their” directors. The shorthand is commercially understandable and legally hazardous, because once appointed, the designee is not the investor’s representative seated inside the portfolio company; he or she is a fiduciary of the portfolio company. Statements like “I cannot vote until the investment committee approves,” “headquarters has not authorized this,” or “send us the agreement and the funding will follow” are not automatically wrongful. But Zync shows how each can become evidence that the director’s judgment belonged to someone else.

V. Liability Travels Up the Chain

The development that will matter most to the insurance community is not that the director remained exposed. It is that the claims against the investor survived.

The aiding-and-abetting analysis is the doctrinal heart of the opinion. In In re Mindbody and In re Columbia Pipeline, the Delaware Supreme Court raised the pleading bar for aiding-and-abetting claims against third-party acquirers, requiring actual knowledge and affirmative conduct.^[5] The Zync court declined to extend that protection beyond the arm’s-length setting that produced it. Other alleged aiders and abettors are differently situated, Vice Chancellor Laster explained, and an employer-principal alleged to have directed its employee-agent is the paradigm: the agent’s knowledge and conduct can be imputed to the principal, and instructions can supply knowing participation. The court drew the same relational distinction earlier this year in Calumet Capital Partners LLC v. Victory Park Capital Advisors, LLC — a decision the Zync opinion cites — where the alleged aider and abettor was likewise an investor whose own employee served as its board designee.^[6] The pattern is now difficult to miss: claims against arm’s-length counterparties remain hard to plead, while claims against an investor whose employee occupies the board seat may be considerably easier.

The intentional interference claim survived on related reasoning. An investor’s financial interest in a company would ordinarily privilege efforts to protect its position, but that privilege is unavailable at the pleading stage where the alleged means of interference — causing the designee’s breach of loyalty — are themselves wrongful.

The implied covenant claim is where Calumet does the most work. The investor rights agreement gave Porsche discretionary approval rights exercised through its designee, and, quoting its earlier decision, the court held that a party may not wield a discretionary contractual right “maliciously and without any justification rationally related to the shared contractual purpose.” The court was careful about the limits. Porsche could have used its veto for many rational purposes — concerns about pricing, harm to the company, or even protection of Porsche’s own interests — without facing an implied covenant claim. What the complaint adequately alleged was different in kind: the use of the right for the sole purpose of harming the company.

Finally, the exculpation holding deserves the attention of every lawyer who papers venture financings. The voting agreement contained a provision captioned “No Liability for Election of Recommended Directors,” which Porsche read to shield stockholders and their affiliates from liability arising from a designee’s acts or omissions as a director. The court held the provision too ambiguous to support dismissal — and held, independently, that Delaware law does not permit parties to eliminate liability for intentional and bad-faith acts, whether by contract or through the governance-agreement authority the legislature added as Section 122(18) in 2024.^[7] Provisions of this general kind appear in customary venture documentation. Zync is a caution against reading them as a general liability shield for the appointing investor.

Once claims travel from the board designee to the venture organization, the insurance analysis becomes considerably less straightforward.

VI. The D&O Insurance Questions

The relevant policies are not public, and nothing here is a coverage opinion. The value of Zync for the insurance community lies in the questions its fact pattern forces — many of which readers of this publication will recognize from other contexts.

The portfolio company’s policy. A designee facing these claims would ordinarily tender under the portfolio company’s private-company D&O program. But the claimant here is the company itself, suing its own director — the classic trigger for insured-versus-insured or entity-versus-insured exclusion analysis. Private-company forms vary widely on the decisive details: whether the exclusion reaches claims brought directly by the insured entity; whether insolvency, receiver, trustee, or derivative-claim carve-backs apply once the company has collapsed; whether severability or non-imputation wording affects other potentially applicable exclusions; and whether a Side A difference-in-conditions policy provides broader protection above the tower.

Indemnification and advancement. Delaware law permits advancement of defense costs upon an undertaking to repay, with the scope of any mandatory rights fixed by the charter, bylaws, and indemnification agreements.^[8] But Zync allegedly shut down because it could not raise capital, and a contractual advancement right against an insolvent company has limited practical value — which is precisely the gap Side A protection exists to fill. There is a telling detail in the record on this point: in the final weeks, Porsche allegedly conditioned approval of the private equity financing on the fund indemnifying Porsche and its designee. Whatever else that demand shows, it suggests the participants understood in real time that the existing protection might not be enough.

Conduct allegations. The complaint pleads disloyalty and bad faith, not negligence. That implicates conduct exclusions — fraud, deliberate acts, improper personal benefit — and puts weight on final-adjudication wording, imputation provisions, and the carrier’s obligations with respect to defense costs before any adjudication. Allegations are not adjudications, and the surviving-the-pleadings posture of Zync is exactly the situation those provisions were negotiated to address.

The venture organization’s policy. The designee may also look to the investor’s management-liability program. Private equity and venture capital policies frequently include outside-directorship liability coverage for personnel serving on portfolio-company boards, typically structured on a double-excess basis — sitting above indemnification and insurance available from the portfolio company. That structure generates its own questions on these facts: whether the portfolio company is a scheduled or qualifying outside entity; whether the coverage protects only the individual or also reaches the investor entities facing aiding-and-abetting and interference claims; how the excess attachment operates when the underlying company is insolvent and its own policy’s response may be contested; and whether a board observer would fare differently than a director.

The capacity paradox. The most interesting coverage problem is structural. D&O policies generally insure acts undertaken in an insured capacity, and the two programs here would define that capacity differently — Zync director on one side, Porsche employee on the other. The plaintiff’s theory of liability is that the designee acted as the investor’s agent rather than as the company’s fiduciary. The stronger that allegation becomes, the stronger a carrier’s potential argument that the conduct fell outside the insured capacity, or within a dual-capacity or outside-position exclusion — on either tower. This publication has covered decisions barring coverage for individuals acting in dual capacities;^[9] Zync presents the problem in its purest venture form.

The counterargument is equally substantial. A director does not necessarily leave the insured capacity by acting with an improper motive; the alleged breach may have been possible precisely because the individual exercised the authority of the Zync board seat. Motivation, loyalty, and capacity are related but distinct inquiries, and the answer would turn on the specific policy wording and on whether the claim is understood to arise from the exercise of board authority, employment responsibilities, or both. The merits theory and the coverage defense are mirror images — the same characterization that makes the fiduciary claim viable may make the coverage question hard — but Zync frames a genuine coverage contest, not a foreordained result.

Allocation. The litigation involves an individual director, multiple investor entities, and mixed fiduciary, tort, and contract claims — some potentially covered, some potentially not, spread across two towers with different retentions, attachment points, and exclusions. That is a recipe for allocation disputes over defense costs, separate counsel, priority of payments, and the erosion of shared limits.

VII. The Strategic-Investor Dimension

Traditional venture investors principally want financial returns. Strategic and corporate venture investors may also want technology access, commercial terms, competitive intelligence, and optionality over an emerging capability. None of that is improper, but it raises the probability that the investor’s interests will diverge from the company’s — and Zync alleges divergence in a stark form: an investor extracting a competitor’s draft contract while allegedly blocking the financing the company needed to serve that competitor. The complaint also alleges that Porsche’s conduct reflected a broader strategy of using minority investments and governance rights to keep emerging technology away from competing manufacturers; that allegation remains unproven. These tensions may become especially acute in artificial intelligence and other technology markets where a strategic investor can also be a supplier, customer, prospective acquirer, and competitor.

VIII. Questions Zync Puts on the Table

Zync is one pleading-stage decision on unusually hard facts, and the record may look different after discovery. But the questions it raises do not depend on the outcome.

For venture organizations and portfolio companies

The decision illustrates how internal shorthand and instruction-based workflows become the evidentiary record: whether communications reflect consultation or direction; whether the business rationale for withholding consent was recorded when the decision was made; and where information obtained through board service travels once it leaves the boardroom. For portfolio companies, the decision draws attention to how approval rights are structured — stockholder-level consents and director-level approvals sit in very different doctrinal postures — and to the value of indemnification agreements and D&O placement completed before distress arrives.

For brokers and coverage counsel

The fact pattern reads like a working checklist: insured-versus-insured wording and its carve-backs, outside-directorship coverage and its scheduling requirements, double-excess mechanics over an insolvent underlying company, capacity and dual-capacity exclusions, Side A adequacy, and priority-of-payments provisions.

For underwriters

Zync suggests a diligence distinction between financial and strategic investors — and a reason to ask how a fund’s designees actually receive, document, and act on instructions from the organizations that appointed them.

IX. Conclusion: The Board Seat Is Not the Fund’s Seat

Venture firms obtain board seats to protect their investments. Zync recounts allegations — so far only allegations — of a board seat operating as the instrument through which an investment destroyed the company. If those allegations are ultimately credited, the exposure will not have stopped with the director. It will have traveled to the investor that gave the instructions, through contracts that routed a veto through a fiduciary, and into two insurance programs whose responses may depend on incompatible characterizations of a single individual’s role. The board seat may be insured. The instructions behind the board seat may not be. For venture investors, the lesson is that a designee must exercise independent fiduciary judgment. For the D&O insurance market, the harder question is whether coverage follows the director when the complaint alleges that the independence disappeared.

Ben Dubin is the Managing Member of VC Expert Services, LLC, providing expert witness and litigation consulting in venture capital and private-company disputes. He is the author of The Architect’s Guide to Venture Capital: The Forensics of Venture Capital Disputes (Silicon Arbitrage Press), a six-volume book series on venture capital governance and dispute resolution. More at vcexpertservices.com.

The author is not engaged in the Zync litigation and has no relationship with any party to it. This article describes allegations and pleading-stage rulings only; it is not legal advice and expresses no opinion on the merits of the claims or on the existence or scope of any insurance coverage.

^[1] Zync, Inc. v. Porsche Investments Management, S.A., C.A. No. 2025-0284-JTL (Del. Ch. May 29, 2026).

^[2] Weinberger v. UOP, Inc., 457 A.2d 701, 710 (Del. 1983).

^[3] See Shocking Technologies, Inc. v. Michael, 2012 WL 4482838 (Del. Ch. Oct. 1, 2012).

^[4] Zync, Inc. v. Porsche Investments Management, S.A., 2026 WL 1470324 (Del. Ch. May 26, 2026) (dismissing the individual Porsche executive for lack of personal jurisdiction).

^[5] In re Mindbody, Inc. Stockholder Litigation, 332 A.3d 349 (Del. 2024); In re Columbia Pipeline Group, Inc. Merger Litigation, 342 A.3d 324 (Del. 2025).

^[6] Calumet Capital Partners LLC v. Victory Park Capital Advisors, LLC, 353 A.3d 88 (Del. Ch. 2026).

^[7] Del. Code Ann. tit. 8, § 122(18).

^[8] Del. Code Ann. tit. 8, § 145.

^[9] See, e.g., D&O Insurance: Coverage Precluded for Individual Acting in Dual Capacities, The D&O Diary (July 2024).

In its July 29, 2026, report on first half securities class action lawsuit filings (here), Cornerstone Research explained the increased levels of 1H26 securities suit filings as being due in significant part to “a surge in litigation involving artificial intelligence-related claims .” In the latest example of this type of AI-related securities litigation, as well as an example of the kinds of allegations that can lead to these kinds of suits, late last week a plaintiff shareholder sued Israeli cloud web development platform company Wix.com, alleging the company had overstated its AI-related capabilities and prospects, while understating its AI-related costs. A copy of the July 24, 2026 complaint can be found here.

Background

Wix offers services that allow users to create and customize professional websites. At relevant times, the company allegedly tried to remain competitive by providing its customers with AI-powered offerings. In January 2026, the company launched Wix Harmony, intended to be the Company’s flagship AI site builder, allowing users to generate designs, contents, and layouts automatically.

The complaint alleges that during the class period, the company touted its purported leadership in AI-powered web development, which it claimed set it apart from competitors.  The complaint alleges that in reality the company’s costs were “accelerating at an alarming rate as it struggled to maintain its relevance in the market, particularly as competing AI technologies and services were increasingly outpacing the capabilities of Wix’s own products.”

On May 13, 2026, the company reported disappointing financial results for the 1Q26, including earnings and revenue below consensus expectations, as well as a decline in operating margins attributed to softness in its professional developer business.

In an earnings call the same day, the company acknowledged that Wix’s professional developer customers were using competing AI tools, as well as that its Harmony platform had “holes” and “missing capabilities,” and that there had been delays in delivering product updates, as a result of which the company had fallen behind “the workflow and needs of” professional developers. According to the complaint, the company’s shares fell about 27% on this news.

The Lawsuit

On July 24, 2026, a plaintiff shareholder filed a securities class action lawsuit in the Northern District of Illinois against Wix and certain of its directors and officers. The complaint purports to be filed on behalf of a class of investors who purchased the company’s securities between February 19, 2025, and May 12, 2026.

The complaint alleges that during the class period, the defendants made false or misleading statements or failed to disclose that: “(i) Wix had overstated the competitiveness and performance of its AI product offerings relative to those offered by other companies; (ii) Wix had understated the costs associated with developing and promoting its AI product offerings; (iii) accordingly, Defendants overstated the commercial and financial benefits of Wix’s product offerings; and (iv) as a result, Defendants’ public statements were materially false and misleading at all relevant times.”

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 damages on behalf of the class.

Discussion

As noted above, the volume of AI-related securities suit filings has been an important factor in the number of securities class action lawsuit filings this year. There have been several different kinds of AI-related lawsuits filed; this lawsuit clearly represents an example of a so-called “AI washing” securities suit, in which plaintiffs allege that the defendant company misrepresented its AI-related capabilities and opportunities. The plaintiff specifically alleges that “overstated the competitiveness and performance of its AI product offerings” and “overstated the commercial and financial benefits” of its AI product offerings.

In its discussion of the AI-related securities lawsuit trends, the Cornerstone Research report about 1H26 securities suit filings breaks down the AI-related lawsuits by defendant type. The defendant categories to which the report refers include AI development companies; AI usage companies; AI Infrastructure/Hardware companies; Data Centers; Autonomous Vehicles; and other.

I think this categorization provides a useful framework to think about and to analyze the AI-related securities litigation.

The defendant in this lawsuit appears to fit in the AI development company category, as it is creating and trying to market AI tools for professional developers to use in website design and creation. (The company’s customers apparently would seem to qualify as AI users.)

According to the Cornerstone Research report, there previously had been 6 AI-related securities suit filings involving AI developers in 2026, making this new lawsuit the 7^th. According to the Cornerstone Research report’s analysis, AI developers are the most frequent target in the AI-related securities suits filed so far this year.

In addition to the complaint’s AI-washing type allegations, this new complaint also has allegations concerning the defendant company’s AI-related spend – specifically, that the company underreported the costs associated with developing and promoting its AI product offerings.

As companies face pressures to incur costs in order to keep up in the AI arms race, AI spend-related allegations are an increasingly important part of AI-related securities suit allegations. Readers may recall that AI spend related allegations were in fact a key component of the AI-related lawsuit filed last year against Oracle and in the lawsuit more recently filed against Microsoft. As AI associated cost become increasingly astronomical, it seems probable that AI spend-related allegations will become an increasingly important part AI-related securities suit complaints.

The Cornerstone Research report says that as of this year’s mid-point, there had been a total of 15 AI-related securities suits filed so far in 2026, compared to 16 for the full year 2025, putting the 2026 AI-related securities suit filings on a pace to almost double the number of 2025 filings. (Cornerstone Research’s filing numbers differ slightly from our own tallies, but the figures in both data sets are directionally consistent.) Under the Cornerstone Research tally, this new lawsuit filing brings the year’s count of AI-related filings to 16, with more undoubtedly to come. It seems clear that by year end the AI-related litigation will prove to have been an important factor in the total number of securities class action lawsuits filed this year.

There is one final note I want to add of significance for D&O insurance underwriters, and that is to observe that while these AI suits involve AI-related allegations, they otherwise are entirely conventional securities class action lawsuits. Other than the AI allegations, there is really nothing new about these suits.

For that reason, in thinking about what the underwriting implications of these AI suits, D&O underwriters don’t have to come up with an entirely new underwriting approach. Rather, they need to think about how to adapt existing tools to this new category of suits. The type-of-defendant framework Cornerstone Research proposed is one good starting point. Another useful starting point is the type of AI-related allegation, starting, for example, with AI washing type allegations. In future posts, we intend to further explore the relevance of these kinds of analytic frameworks in developing an underwriting approach to AI-related D&O claims risk.

The wave of litigation involving private credit continues to expand. FS KKR Capital Corp. (“FSK”), one of the largest publicly traded business development companies (“BDCs”), is already defending a securities class action lawsuit (KKR SCA) alleging that it overstated asset valuations and misrepresented the effectiveness of its efforts to address troubled portfolio companies. On July 15, 2026, a shareholder of FSK filed a separate derivative lawsuit against the company’s external investment adviser, FS/KKR Advisor, LLC (FS/KKR), alleging that the adviser extracted grossly excessive advisory fees in violation of its fiduciary duties under Section 36(b) of the Investment Company Act of 1940.

The D&O Diary has been following developments in the private credit industry closely, including litigation involving valuation and redemption, Payment In Kind (PIK) structures, and conflicts of interest. Indeed, we recently queried whether litigation challenging adviser compensation tied to PIK income and related valuation practices was likely to emerge. This newest lawsuit against FS/KKR appears to be a manifestation of that possibility, as shareholders allege that the adviser’s compensation structure incentivized conduct that breached the fiduciary duties it owed to investors. The case is also the latest example of developing litigation arising out of problems in the private credit industry.

A copy of the complaint filed against FS/KKR can be found here.

The Lawsuit

The derivative complaint against FS/KKR was filed on July 15, 2026, in the Southern District of New York, by plaintiffs, the Employees Retirement System of the City of St. Louis on behalf of FSK against FS/KKR, FSK’s external investment adviser.

The shareholder plaintiffs allege that FS/KKR breached its fiduciary duty under Section 36(b) of the Investment Company Act of 1940 (ICA) by collecting advisory fees that were “so disproportionately large” that they bore no reasonable relationship to the value of the services provided. The complaint seeks recovery of allegedly excessive advisory fees paid to the adviser, together with equitable relief.

According to the complaint, the adviser allegedly controlled both the valuation of FSK’s largely illiquid Level 3 private credit investments and the calculation of its own compensation, which was based in significant part on those valuations. The plaintiffs contend that this structure created an inherent conflict because higher valuations increased the adviser’s management fees.

Similarly to the June 18, 2026, complaint filed against Blue Owl Technology Credit Advisors LLC (Blue Owl) the lawsuit against FS/KKR also focuses heavily on FSK’s growing use of PIK income (payment-in-kind interest, under which interest is not paid currently in cash but instead is added to the borrower’s outstanding debt balance and recognized as income by the lender as it accrues).

The shareholder complaint alleges that because PIK interest is recognized as income before cash is received, FS/KKR was able to increase both management fees and incentive fees based upon non-cash income while shifting the ultimate collection risk to shareholders. The complaint further alleges that the advisory agreement contains no clawback mechanism requiring repayment of incentive fees if the underlying PIK income ultimately proves uncollectible.

Shareholder plaintiffs further allege that, during the five years following the 2021 merger creating the current FSK structure, the adviser received approximately $1.696 billion in advisory fees while FSK’s net asset value declined substantially, and investors suffered significant realized losses.

Discussion

While the prior KKR SCA alleges improper valuation and disclosure deficiencies, the new derivative lawsuit against FS/KKR shifts the focus of legal liability to improper adviser compensation. Instead of challenging what the company said about the strength of its investment portfolio, the plaintiffs allege that FS/KKR’s fee arrangements violated Section 36(b) because they inflated advisory compensation at shareholders’ expense.

In that respect, the case resembles the recent litigation against various Blue Owl entities. In that case, shareholder plaintiffs challenged arrangements in which an adviser allegedly exercised significant influence over the valuation of illiquid private credit assets, PIK, while receiving compensation tied to those valuations. Whether this emerging theory against fund advisors succeeds remains to be seen, suggest that shareholders are increasingly challenging private credit valuation decisions, fee generation, and fiduciary conduct.

However, we previously noted that claims against private credit advisor entities may face hurdles. Section 36(b) excessive-fee actions historically have been difficult for plaintiffs to pursue successfully. Under the Jones v. Harris Associates and the Gartenberg framework, plaintiffs bear the burden of proving that an adviser’s fee is so disproportionately large that it could not have been the product of arm’s-length bargaining, a standard that courts have applied deferentially to board-approved advisory contracts. Nevertheless, the complaint against FS/KKR could reflect a growing willingness among shareholder plaintiffs to test whether claims that fees were not the product of arm’s-length bargaining will succeed under the ICA.

For insurers of private credit risk, litigation against third-party advisors could implicate investment adviser liability, asset management E&O, or similar professional liability coverages. With respect to public company D&O programs, there may be exposure if shareholder plaintiffs assert claims against directors and officers based on alleged failures to oversee valuation practices, adviser compensation arrangements, or potential conflicts associated with PIK income.

The recent derivative litigation against private credit advisory firms also arrives at a time when public scrutiny over the private credit industry continues to build. A recent Troutman Pepper Locke article noted that banks are tightening lending terms for private credit funds, increasing back-leverage costs, restricting concentrations in certain sectors, and responding to heightened regulatory attention focused on leverage, valuations, and liquidity risks.

Whether this latest wave of allegations against private credit advisors ultimately gains traction remains uncertain. Nonetheless, these lawsuits underscore a continuing willingness by plaintiffs to directly challenge the incentive and compensation structures that underpin private credit business models. As these theories are tested in court, excessive-fee litigation targeting private credit practices may continue to proliferate. For D&O and E&O insurers, this trend bears close attention, as it may signal an expanding range of liability exposures stemming from private credit compensation arrangements, governance practices, and potential conflicts of interest.

Many of us are still trying to get comfortable with the idea of autonomous vehicles. Turns out, we may soon need to get comfortable with the idea of autonomous companies.

A first-of-its-kind draft bill has been proposed to the Delaware legislature that would allow the creation of an Artificial Intelligence Company (AIC), a form of legal personhood for an entity that operates through an AI agent with no human at the controls, and with the same kind of limited liability for the entity’s owners as for a more traditional company.  

As discussed below, the proposed new AIC corporate form raises some very interesting questions. It also arguably represents an entirely new challenge for the D&O insurance industry.

A copy of the draft bill can be found here. Special thanks to Lauren Pringle of The Chancery Daily for providing me with a copy of the draft bill.

Background

The proposed Delaware legislation is the culmination of several months of planning and coordination including the Delaware General Assembly’s creation in 2024 of an Artificial Intelligence Commission. The Commission’s regulatory sandbox subcommittee has now released draft legislation that would permit the creation of a legal entity of a new type, called an Artificial Intelligence Company (AIC), whose operations are to be run entirely by an AI agent.

The Proposed New Corporate Form

In a July 14, 2026, Fortune magazine article (here), Delaware Secretary of State Charuni Patibanda-Sanchez and Norm Ai founder and chief executive John Nay, the architects of the AIC proposal, describe the proposed AIC corporate form and the regulatory sandbox framework. As they explain, their idea is to create a corporate form to permit a company to be run entirely by artificial intelligence — a company with a legally separate identity from the company’s owner or parent company, with the ability to own assets and to enter contracts, and to sue or be sued in its own name. The draft legislation would authorize a 30-month test period starting from the passage of the legislation. The article also explains that the framework for this initiative is being developed in Delaware as part of a public-private partnership led by Norm AI.

Under the model proposed in the draft legislation, the AIC would have a single member, either a person or an entity, responsible for keeping the AIC adequately capitalized. The member would be shielded from the AIC’s debts except when it fails to capitalize the company or uses it to commit fraud or a willful violation of law.

Under the terms of the proposed legislation, and for now at least, the AIC could only operate within the constraints of a “regulatory sandbox,” with admission to the sandbox determined by a committee of designated state officials. An AIC seeking to operate within the sandbox must meet capitalization requirements and disclose a variety of mandated information to counterparties. The draft legislation has a number of provisions allowing AICs to be suspended or to have its authorization revoked. The use of an AIC for banking is prohibited. The legislation also sunsets the AIC program after 30 months, allowing the General Assembly to decide what steps to take next.

At the core of the proposal is a requirement that the AIC must keep a log of its activities. The idea is that before deployment the AIC would have encoded into its operating AI agent authority limits constraining the agent’s authorized activities. The agent would precheck its planned activities against the authority limits, creating a record required to satisfy the proposed legislation’s activity log requirement. An attorney would review the transactions to provide the AIC’s member with the proof that the proper oversight is being provided. (With respect to the technical feasiblity of these agency authority protocols, please refer to this blog post’s Comments section for one reader’s very interesting observations.)

The legislation’s architects assert in their Fortune article that “there are real protections.” Through disclosures, counterparties would know they are dealing with a temporary, autonomous entity. The proposed liability protections exist only “inside the sandbox” (i.e., for companies that are accepted into the program), and only for participants that “follow the rules.”  The architects also emphasize that “consumer-protection and criminal law apply in full.”

In discussing the new proposed AIC form, the legislation’s architects state that the “point” of the legislation is to “pilot agentic commerce in daylight, under supervision, with capital tied to liability and the ability to shut a system down.” If the U.S. legal system does not provide a “home” for “autonomous commerce,” the activity will “migrate offshore and onto anonymous infrastructure beyond the reach of any court.” Instead, under the structure that the proposed legislation offers, “Delaware could govern this technology inside the American legal tradition, where it can be observed, tested, and held to account.”

The draft proposed legislation apparently has gone through the requisite legislative committee processes, and will now go before the full legislature when it reconvenes, which next happens in January 2027.

Discussion

My analysis of the proposed AIC corporate form is hamstrung by my own lack of imagination. For starters, I have difficulty envisioning the use case for an AIC. (Apparently, I am not the only one having this problem; a July 23, 2026, Bloomberg article about the new proposed corporate form quotes one commentator as saying that it is “a solution in search of a problem.”)

I also have limited insight into many of the specifics of the proposed AIC form, perhaps because the draft proposed legislation is really not a plan so much as it is a plan to try to come up with a plan. I only see problems. For example, will courts of other jurisdictions recognize the corporate form, and afford the protections the corporate form is designed to provide?

That said, I do see the argument that it is worth providing a legal and regulatory framework to allow experimentation, so that efforts to expand agentic AI toward fully autonomous operation are controlled and observed and can serve as the basis for future legal changes. As the Bloomberg article cited in the preceding paragraph put it, the initiative seeks to “build out the legal infrastructure for autonomous commerce now, before it’s too late to shape or constrain a technology offering unprecedent promise or peril.”

Among the “perils” involved is the possibility for a fully autonomous company to go off the rails. You don’t have to look much further than the recent widely reported incident in which an Open AI model operating in an isolated test environment escaped the isolated environment and apparently attacked the systems of another AI developer (improbably named “Hugging Face.”). That is, there is the risk that the Waymo decides you really want to go to Vegas rather than to the grocery store.

As the Bloomberg article notes “there’s deep suspicion toward the prospect of an entity engineered to absorb the liability generated by models known to lie, cheat, commit fraud, go rogue, and just make really bad mistakes.” The proposed AIC model’s defenders say that giving the autonomous company personhood represents “the best chance for addressing erratic and antisocial AI tendencies that are slipping through the cracks.” The proposed “sandbox” experiment, the defenders assert, provides an opportunity to try to define “exactly where the liability lands.”

Corporate governance observers predictably will have a wide variety of responses to the Delaware proposal. I favor the experiment. It is better to try to identify and structure the needed legal structures at the outset, rather than trying to back and fill after agentic, autonomous entities have become a major presence in the local, national, or global economies.

I will say that this: the new proposed corporate entity represents a novel and arguably troubling problem for the D&O insurance industry.

Consider that, even though D&O policies now routinely include various types of entity coverage, the D&O policy itself was originally designed to, and arguably is still primarily intended to, protect individuals. But there are no individuals involved with the proposed AIC corporate form. Any liability policy designed to provide AIC protection would by definition be an entity-only product.

For anyone trying to map out an insurance response to the proposed advent of the AIC corporate form, there are a host of questions. What would the claims look like? What should the coverage trigger be? Indeed, what would the policy be designed to try to protect against – loss of the entity’s capital as a result of liability claims?

A policy form designed to address the AIC entity would also require a host of exclusions as well. Just off the top of my head, it seems there would need to be a contractual liability exclusion. There would need to be an member vs. insured exclusion, to guard against a member suing the AIC just to try to collect on the insurance. (On the flip side, I can see the argument that the member should be an additional named insured under the AIC’s policy). There would need to be a fraud exclusion. It also seems to me that the AIC policy would be best issued in tandem with a Tech E&O policy as well.

While trying to think about what liability insurance for a DIC entity seems to raise more questions than answers, I will say that this arguably is the first instance I can think of where the advent of AI really does seem to require the creation of a new form of insurance. Many carriers may decide to wait and see what develops, but there could be forward-looking players who think they see this as a great future opportunity to try to develop and move forward now.

It certainly is interesting to think about what the underwriting for such a policy might look like. You would want to know a lot about the member and about the AIC’s capitalization. You would also want to know a lot about the AI agent, its purpose, and most importantly the limits on its agency, as well as about the reporting system intended to monitor the agent’s activities. Pricing would also present another interesting dilemma.

Some readers may consider my speculation about a hypothetical new AIC liability insurance policy to be a not very interesting parlor game.

I disagree.

I think insurers are going to have to be all over this. There has been a lot of discussion up to this point among insurance professionals about the supposed need for new standalone policies to address emerging AI risks. To me, the possibility of the advent of the new AIC corporate form might be the first legitimate case where there needs to be a new product to address new circumstances arising due to the emergence of AI.

I welcome readers’ thoughts and comments. The one thing I know for sure is that this is going to interesting to watch.

Author’s Note: At least some readers will know that the phrase I used in the title — “Brave New World” — comes from Shakespeare’s play The Tempest. The complete line, spoken by Miranda, the daughter of Prospero, is: “O wonder!/ How many goodly creatures are there here! /How beauteous mankind is!/ O brave new world,
That has such people in’t!” In performance, the line pretty reliably draws an appreciative laugh from the audience.

The reference to a “Brave New World” in the context of the Delaware legislation has a certain irony, at least for former English majors like me. That is, we might all say now, in paraphrase of Miranda,”O brave new world, in which there are to be no people at all involved!”

Miranda speaks the line because she had been raised on an island, essentially in isolation from the rest of mankind. Her sense of wonderment arises from her discovery that there are others, whom she had never previously encounted. In the play, the words have an irony of their own, because by the time Miranda says her line, the audience knows that the people she has met (a group of English nobelmen) are in some cases deeply flawed human beings.

So we may well respond with wonderment of our own, to have discovered a conjectured world that proposes to operate without any people at all. In reliance upon non-human agents we know to have deep, potentially troublesome flaws. Irony on top of irony.

D&O Diary readers are aware of a growing trend over the past year: an increasing number of securities class actions arising from alleged market manipulation involving low-float public companies. These cases, ranging from pump-and-dump and spoofing schemes to stock promotion claims, now also include a lawsuit filed this week against Megan Holdings Limited (Megan), whose share price allegedly surged more than 400% in one month before plunging over 93% in a single trading day. The company, headquartered in Malaysia, develops, constructs, and maintains aquaculture farms and related infrastructure. 

A copy of the lawsuit can be found here.

The Complaint

On July 7, 2026, investors filed a securities class action in the Southern District of New York against Megan, certain officers, its former auditor, and its IPO underwriter, alleging violations of the Securities Act of 1933 and the Securities Exchange Act of 1934. The complaint alleges that after Megan’s September 2025 $5 million IPO, its share price rose more than 400%—from about $1.23 to an intraday high of $5.18 between February 25 and March 25, 2026—despite no material company-specific news, before collapsing 93.4% to $0.28 on March 26, 2026.

According to the complaint, the surge resulted from a coordinated pump-and-dump scheme promoted through WhatsApp groups, online forums, and social media, where individuals posing as financial advisers allegedly used false identities and misleading materials to tout Megan shares. Plaintiffs allege the resulting artificial demand allowed conspirators to sell at inflated prices before the stock collapsed.

The suit also seeks to hold Megan, its executives, auditor, and underwriter liable for allegedly failing to disclose the promotion scheme, the risk of market manipulation, material weaknesses in internal controls, and the underwriter’s involvement in other low-float IPOs that experienced similar volatility. The complaint further alleges that Megan’s small public float made the stock particularly vulnerable to manipulation and argues that recent regulatory scrutiny of low-float issuers made these risks foreseeable.

Discussion

This lawsuit fits squarely within the market-manipulation trend, particularly alleged pump-and-dump schemes, that the D&O Diary has been closely tracking. Unlike traditional securities suits centered on accounting issues or operational setbacks, these cases arise from extraordinary trading activity that securities lawsuit plaintiffs attribute to market manipulation. Whether involving alleged pump-and-dump schemes, stock promotion campaigns, or, as in the Genius Group case, alleged spoofing activity, the common thread is shareholder plaintiffs’ effort to convert alleged market misconduct into federal securities law claims.

The Megan complaint closely resembles several of the low-float IPO cases previously discussed by the D&O Diary, including lawsuits against Charming Medical Limited, PomDoctor, Ltd., China Liberal Education Holdings Ltd. (“CLEU SCA”), and Picard Medical, Inc.. As in those cases, plaintiffs point to a small public float, rapid share-price appreciation unsupported by company-specific developments, heavy trading volume, aggressive promotion directed at retail investors, and a subsequent price collapse. The allegations focus less on the company’s business performance than on whether the company and offering participants failed to disclose circumstances that allegedly left the stock vulnerable to manipulation.

The litigation against Megan highlights another recurring feature of the recent low-float pump-and-dump cases: plaintiffs’ efforts to expand liability beyond the issuer and its executives. As in the Charming Medical lawsuit, shareholders in the new Megan Holdings suit have named the company’s auditor and IPO underwriter as defendants, alleging that they knew or should have known of risks associated with the offering and failed to ensure adequate disclosures. Rather than targeting only the alleged promoters or market manipulators, these suits seek to hold offering participants and other gatekeepers liable for purported disclosure failures relating to the issuer’s vulnerability to manipulation. The Megan complaint reflects this same evolving litigation strategy, which increasingly casts underwriters, auditors, and other advisers as potential defendants alongside the company and its management.

This trend involving alleged pump-and-dump schemes and other forms of market manipulation targeting low-float issuers, particularly foreign-based companies that recently completed U.S. IPOs, may gain further momentum as regulators intensify their focus on low-float and cross-border manipulation risks. The SEC’s 2025 formation of a Cross-Border Task Force specifically targeting foreign-based market manipulation schemes, coupled with Nasdaq’s efforts to tighten listing requirements for issuers viewed as particularly vulnerable to manipulation, suggests that these issues will remain a significant area of regulatory and litigation scrutiny.

Whether these theories ultimately gain traction in the courts remains uncertain. Many of these cases test the outer boundaries of the federal securities laws by seeking to transform alleged misconduct by third-party traders, promoters, and social-media actors into actionable disclosure claims against issuers and their advisers. Nevertheless, the proliferation of pump-and-dump, spoofing, and other manipulation-based securities suits suggests that market-manipulation litigation has become a distinct and growing category of securities class actions. With regulators continuing to focus on low-float issuers and cross-border promotion schemes, plaintiffs seem likely to continue pursuing these claims, making this a trend that D&O underwriters may want to monitor closely.

The fourth episode of The D&O Diary Podcast Series, discussing the D&O liability and insurance implications of the current Trump administration’s tariff policies, is now live.

The D&O Diary has closely followed the rapidly evolving tariff environment and the growing range of litigation and liability issues arising from it. Building on our prior posts examining tariff-related securities litigation, refund litigation, and emerging corporate disclosure challenges, we discuss in this latest episode how tariffs have become a D&O risk for both public and private companies.

The pace of geopolitical developments has been extraordinary, and the associated litigation risks continue to evolve. As courts, regulators, companies, and investors confront new questions surrounding tariffs, tariff-related D&O exposure is likely to remain an important topic for the foreseeable future.

We recorded this podcast just before the Trump administration announced the latest round of tariffs, but the latest tariff impositions merely underscore many of the points we make in this episode.

Our thanks to everyone who has listened to, subscribed to, and supported The D&O Diary Podcast Series. We greatly appreciate the encouragement and feedback we have received and welcome your comments and your suggestions for future episodes.

Listen now on:

Spotify: https://open.spotify.com/episode/38zgHW9pmzpv1kcYtf8wAE?si=LDBR_oGMSaq_zIO0bSXrFQ

or

Apple Podcasts: https://podcasts.apple.com/us/podcast/the-d-o-diary-podcast/id1896880954?i=1000777613795

Watch on YouTube: https://youtu.be/vB_-s7mhumg

Follow Us on LinkedIn: The D&O Diary now has its own LinkedIn page. The D&O Diary’s LinkedIn page can be found here.

Both the number of securities class action lawsuit filings and the number and total value of securities lawsuit settlements during the first half of 2026 were on track for the highest annual levels in several years, according to reports published this week by National Economic Research Associates (NERA) and Cornerstone Research, respectively. The NERA report, entitled “Recent Trends in Securities Class Action Litigation: H1 2026 Update,” can be found here. The Cornerstone Research report, entitled “Securities Class Action Settlements,” can be found here. The D&O Diary’s own analysis of the securities suit filings in the year’s first six months can be found here.

According to NERA, there were 118 federal court securities class action lawsuit filings in the first half of 2026, which projects to a year-end total of 236, which would be not only 15% greater than the 205 cases filed in 2025, but would also represent the highest annual total since 2020.

The increase in the number of filings in the year’s first six months is attributable to a number of filing trends. For example, according to the NERA report, there were 18 first half AI-related filings, already exceeding the 17 AI-related cases filed in all of 2025. There was also an increase in the number of cases with pump-and-dump allegations, from no more than two filings annually during the period 2022-2025 to 11 the first half of 2026. On the other hand, the number of crypto and SPAC-related filings declined sharply from 2025 levels, with only 2 crypto-related filings in the year’s first six months compared to 14 for the full year 2025, and only one SPAC-related filing in the 1H26 compared to five for the full year 2025.

With respect to securities suit filings against non-U.S. companies, the share of standard federal filings against foreign companies increased to 20.5% of all filings in the year’s first half, compared to only 13.8% in the full-year 2025 (a 10-year low). The 23 first half filings against foreign companies are just three less than the 26 filed in the full-year 2025. Despite this increase, foreign companies as securities suit defendants remained underrepresented in the 1H26 relative to their 29.8% share of all U.S.-listed companies.

The NERA report also notes that dismissals “continue to outnumber settlements.” During 1H26, there were 105 federal court securities suit resolutions, of which 65 were dismissed and 40 were settled, representing 62% and 38% of case resolutions, respectively.

The distribution of settlement values remained broadly consistent with recent years, according to the NERA report. Excluding merger-objection cases, crypto unregistered securities cases, and settlements without a monetary payment to the class, 43% of settlements in the first half of 2026 fell below $10 million.

According to the NERA report, the average settlement value in the first half of 2026 was $54 million, representing a 2025 inflation-adjusted average settlement value of $41 million. The median settlement value in the 1H26 was $18 million, the same as the 2025 inflation-adjusted median settlement value.

The Cornerstone Research report has slightly different figures for the 1H26 securities class action settlements. According to the Cornerstone Research report, there were 39 securities suit settlements in the first six months of 2026, with a total value of $2.2 billion. If the settlement pace continues in the year’s second half, then 2026 will exceed 2025 both in the number of cases settled and the total settlement value, with the projected annual settlement values being the highest since 2020. (By way of context, in eight of the past nine years, the number of settlements in the second half of the year has exceeded the number in the first half of the year.)

The Cornerstone Research report notes that the average value of securities suit settlement in the year’s first six months was $56.4 million, compared to a full-year 2025 average of $42.2 million, and a 2017-2025 annual average settlement of $46.8 million.

The Cornerstone Research report also states that the median first half 2026 settlement was $20 million, compared to a 2025 full-year median of $17.6 million, and 2017-2025 median of $13 million.

The Cornerstone Research report also notes that during the year’s first six months, there were four mega settlements (of $100 million or greater) accounting for 10% of 1H26 securities suit settlements.

The D&O Diary’s podcast discussing the securities lawsuit filings for the first six months of the year can be found here.

In the following guest post, Ben Dubin, Managing Member of VC Expert Services LLC, discusses Delaware Vice Chancellor Laster’s January 29, 2026 opinion in the Calumet Capital Partners case. This article, which is the first of two discussing recent Delaware decisions regarding VC firm’s representative’s service on the firm’s portfolio company boards, argues that the Calumet decision creates greater litigation risk for venture capital firms whose employees or partners serve as board designees, because courts may more readily infer that the investor knowingly participated in a fiduciary breach when its own representative is involved. The author’s companion article to this one will be published on this site next week. Our thanks to Ben for allowing us to publish his article on our site. Here is Ben’s article.

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I. Introduction

On Jan. 29, 2026, Vice Chancellor J. Travis Laster of the Delaware Court of Chancery denied a motion to dismiss in Calumet Capital Partners LLC v. Victory Park Capital Advisors, LLC.^[1] The case arose from a litigation finance joint venture, not a venture capital investment. VC firms have long placed their own partners and principals on portfolio company boards in reliance on doctrines that made aiding-and-abetting claims hard to bring. Calumet is a reminder that one of those doctrines is narrower than many deal lawyers assumed.

The opinion does not overrule or narrow In re Mindbody or In re Columbia Pipeline. Instead, it highlights a distinction in Delaware aiding-and-abetting doctrine that matters for VC firms: arm’s-length acquirer cases remain difficult to plead, but claims involving an investor’s employee or affiliated board designee may be easier to allege. In that setting, the relationship between the investor and the designee may make knowledge and participation easier to infer.

That distinction matters because VC board representation often looks more like the employee-designee model than the arm’s-length acquirer model. Venture-backed companies routinely give investors the right to designate board members, and those designees are often partners, principals, or employees of the investing firm. When a designee acts in a way that allegedly benefits the investor at the company’s expense, Calumet suggests aiding-and-abetting claims may be easier to plead than the recent Supreme Court line, standing alone, would suggest.

This article explains how that distinction arose, why it matters, and what VC firms should consider when structuring board representation, managing conflicts, and documenting investor-side decision-making.

II. The Pre-Calumet Posture: Mindbody and Columbia Pipeline

To understand what Calumet changes, it helps to start with the cases that came before it. In In re Mindbody, Inc. Stockholder Litigation, the Court of Chancery initially held that a private equity acquirer could be liable for aiding and abetting a target CEO’s disclosure breach where the acquirer knew of the underlying conduct and failed to correct it. The Delaware Supreme Court reversed in late 2024, holding that knowledge of the underlying facts was not enough; the acquirer also needed actual knowledge that its own conduct was legally improper, and the merger agreement’s proxy-review provisions did not create a duty owed to target stockholders.^[2]

The Delaware Supreme Court’s later decision in In re Columbia Pipeline Group, Inc. Merger Litigation^[3] reinforced the same basic point in another acquirer-defendant case. Together, the two decisions reflect a clear policy choice: arm’s-length acquirers are expected to negotiate in their own interest, and Delaware will impose a high pleading bar before holding them liable for fiduciary breaches committed by directors on the other side of the transaction.

For VC-side defense counsel, those decisions created some reason to think the Court might extend that protective logic to other sophisticated investors. Calumet tested whether that assumption could survive outside the arm’s-length acquirer context.

III. What Calumet Does: The Relational Distinction

The facts of Calumet arise in litigation finance, but the structure will feel familiar to VC lawyers. An investor, Victory Park, put $5 million into a joint venture lending entity in exchange for a 10% membership interest and the right to designate one of three managers. It exercised that right by appointing its own employee, Luke Darkow. The plaintiff alleged that Victory Park, acting in part through Darkow, sought to undermine the joint venture and replicate its business through a competing vehicle, Bespoke Capital.

Vice Chancellor Laster distinguished Mindbody and Columbia Pipeline directly. Those cases, he wrote, involved third-party acquirers allegedly participating in fiduciary breaches by sell-side directors, a setting where Delaware imposes a high pleading bar because the acquirer is expected to bargain for its own interests. Calumet involved something different: an employer-principal alleged to have aided and abetted its employee-agent. In that posture, the court reasoned, the “knowing participation” and “substantial assistance” elements of aiding-and-abetting liability are easier to plead because the agent’s conduct can be imputed to the principal, and the principal may be inferred to have directed or benefited from the conduct.

That is the doctrinal move that matters. Calumet does not displace Mindbody or Columbia Pipeline; it shows that Delaware may analyze aiding-and-abetting claims differently depending on the relationship between the defendant and the primary wrongdoer. The third-party acquirer cases remain hard to plead. Cases against an investor whose own employee sits on the board may be easier to plead.

IV. Why Venture Capital Sits on the Investor Side of This Distinction

The structural fit between Calumet‘s reasoning and customary VC board practice is uncomfortably close. Standard venture capital deals — including those reflected in the National Venture Capital Association’s model documents — commonly give investors the right to designate one or more board members, and those designees are often partners, principals, or employees of the investing firm. They are paid by the investor, report through the investor’s internal process, and participate in follow-on, exit, and portfolio oversight decisions in that capacity.

That structure closely resembles the dual-fiduciary posture Calumet addresses. Delaware law recognizes “no dilution” of the duty of loyalty when a fiduciary holds dual or multiple obligations, and Calumet suggests that when an investor’s own designee acts in ways that benefit the investor at the company’s expense, aiding-and-abetting exposure for the investor may be easier to plead.

The strength of that inference will depend on the relationship. A full-time employee or partner of the investor presents a cleaner agency theory than an outside independent director merely nominated by the investor. The closer the designee sits to the appointing investor — through employment, compensation, or reporting line — the more naturally Calumet‘s reasoning applies.

This does not mean every VC board seat is suddenly a litigation problem. Calumet involved unusually stark allegations: a deliberate effort to harm the joint venture, a low-ball buyout offer, manufactured defaults, and a competing business launched with the help of the investor’s designee. The better reading is narrower and more useful: ordinary investor reporting and financing oversight are not the issue, but they become riskier if they are coupled with conduct that uses the board designee to injure the company, transfer confidential information, or divert a company opportunity.

V. The LLC Lesson — and Why Corporate Structure Does Not Fully Solve It

Calumet also matters because it shows how hard Delaware will look at private-ordering language that tries to erase fiduciary exposure. Vice Chancellor Laster focused on the joint venture’s LLC agreement, which was meant to eliminate fiduciary duties except for fraud or willful misconduct. He held that the provision was poorly drafted and that background fiduciary principles still applied to the alleged bad conduct.

Most VC-backed startups are Delaware C-corps, not LLCs, so they cannot eliminate fiduciary duties by contract. They can exculpate duty-of-care claims under DGCL Section 102(b)(7),^[4] but not loyalty claims. That means the drafting lesson from Calumet is not that VC startups should copy its LLC language; it is that Delaware will scrutinize any attempt to use form language to paper over a real conflict.

The more relevant corporate-law point is DGCL Section 144(a).^[5] The 2025 amendments strengthened the safe-harbor framework for interested-director and interested-officer transactions when material facts are disclosed and the transaction is approved by disinterested directors under the required process. That helps inside the company, but it does not fully answer a Calumet-style aiding-and-abetting claim against the investor that appointed the conflicted designee.

The practical lesson is straightforward: document conflict disclosures, use disinterested directors when a conflict arises, and do not rely on broad waiver language as a substitute for process. In a post-Calumet world, process is doing more of the work than boilerplate.

VI. Practical Considerations

Calumet does not mean VC firms should stop using board designees. Board service remains a core part of how venture capital adds value. The point is that, after Calumet, firms should be more deliberate about how they manage the risks that come with it.

First, observer rights can reduce exposure because observers usually lack voting authority and formal director status. But they are not a complete shield. Confidentiality obligations, information misuse, de facto control arguments, and coordinated investor conduct can still create risk if the facts turn bad.

Second, process matters more than boilerplate. Special committees, recusal, conflict disclosures, and DGCL Section 144(a) procedures are the kinds of steps that create distance between the investor and the conflicted decision. In a Calumet-style case, the absence of that process can itself become evidence of problem conduct.

Third, information flow deserves more discipline. VC-affiliated directors routinely report back to their firms, but the line between ordinary oversight and improper transfer of company information can be thin. Firms should think carefully about what is shared, why it is shared, and whether sensitive material should stay in the boardroom.

Fourth, contemporaneous documentation is no longer optional in any serious sense. If an investor declines financing, supports an adverse transaction, or takes another action that may hurt the company, the business rationale should be recorded at the time. That record can matter as much as the decision itself if litigation follows.

VII. Limits and Open Questions

Calumet is still just one trial-court decision, and its facts are unusually stark. A scheme to seize a joint venture’s business and launch a competing vehicle is a long way from ordinary VC board service. The opinion may also be appealed, and the Delaware Supreme Court could narrow or expand the relational distinction when it next confronts the issue.

Even so, the case matters because it identifies a doctrinal seam that Mindbody and Columbia Pipeline did not fully address. Delaware may be more willing to infer aiding-and-abetting liability where the alleged wrongdoer is an investor’s employee or closely affiliated designee, especially if the challenged conduct appears to benefit the investor at the company’s expense.

Developments since this article was first drafted underscore the point. In Zync, Inc. v. Porsche Investments Management, S.A., decided May 29, 2026, the Court of Chancery denied motions to dismiss claims against a strategic investor and its employee board designee at a venture-backed startup, citing Calumet‘s implied covenant analysis and applying the same relational distinction to the aiding-and-abetting claim.^[6] The seam Calumet identified is already carrying traffic.

That does not make every VC board seat dangerous. It does mean the familiar structure of board representation deserves a fresh look, especially where the designee reports to the investor, shares sensitive information, or plays a role in conflicted decisions. In that setting, process and documentation are not just good governance; they are part of the defense.

Ben Dubin is the Managing Member of VC Expert Services, LLC, providing expert witness and litigation consulting in venture capital and private-company disputes. He is the author of The Architect’s Guide to Venture Capital: The Forensics of Venture Capital Disputes (Silicon Arbitrage Press), a six-volume book series on venture capital governance and dispute resolution. More at vcexpertservices.com.

The author is not engaged in the Calumet or Zync litigation and has no relationship with any party to either matter. This article describes allegations and pleading-stage rulings only and is not legal advice.

^[1] Calumet Capital Partners LLC v. Victory Park Capital Advisors, LLC, C.A. No. 2025-0036-JTL, 353 A.3d 88 (Del. Ch. Jan. 29, 2026).

^[2] In re Mindbody, Inc. Stockholder Litigation, 332 A.3d 349 (Del. 2024).

^[3] In re Columbia Pipeline Group, Inc. Merger Litigation, 342 A.3d 324 (Del. 2025).

^[4] Del. Code Ann. tit. 8, § 102(b)(7).

^[5] Del. Code Ann. tit. 8, § 144.

^[6] Zync, Inc. v. Porsche Investments Management, S.A., C.A. No. 2025-0284-JTL (Del. Ch. May 29, 2026).

Over the past couple of years, the D&O Diary has followed how geopolitical developments, including wars, sanctions, tariffs, export controls, and trade disputes, can create public company D&O exposure. These developments can present disclosure challenges and have led to securities suits arising from export controls, tariffs, and related business impacts.

A recently filed securities class action against Photronics, Inc. (Photronics) highlights how later statements about geopolitical tensions and supply chain challenges can be woven into broader claims that a company’s earlier disclosures were misleadingly incomplete. Photronics manufactures photomasks, the highly precise templates used in the process to produce semiconductors. While the complaint primarily alleges misstatements about product demand and financial performance, it also cites disclosure failures related to the U.S.-Iran conflict and supply chain disruptions.

The discussion below examines the lawsuit allegations and related D&O underwriting considerations arising from geopolitical risk disclosures. A copy of the complaint can be found here.

The Lawsuit

On July 6, 2026, a shareholder filed a securities class action lawsuit in the United States District Court for the District of Connecticut against Photronics and three of its senior executives. The complaint asserts claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 on behalf of investors who purchased the company’s securities between December 10, 2025, and May 27, 2026.

According to the complaint, Photronics repeatedly emphasized robust demand for its higher-end integrated circuit photomask products, highlighted its competitive position in the U.S. market, and pointed to AI-related semiconductor demand and domestic reshoring initiatives as drivers of continued revenue growth. The company also projected continued strength in its high-end business despite acknowledging softness elsewhere in the market.

The shareholder plaintiffs allege that these statements were materially false or misleading because the company purportedly knew that customer design releases had slowed, elevated foundry utilization rates were delaying new product launches, and other operational headwinds were adversely affecting demand and future financial performance. Plaintiffs contend that these conditions had already undermined the company’s outlook while management continued providing optimistic guidance.

On May 28, 2026, Photronics announced second-quarter results below expectations and provided third-quarter guidance that also fell short of market expectations. During the accompanying earnings release and conference call, company executives allegedly attributed the disappointing results to several factors, including delayed customer design releases, elevated foundry utilization, memory supply constraints, and geopolitical uncertainty. Plaintiffs cite management’s statements that the U.S.-Iran conflict had increased macroeconomic uncertainty and affected customer decision-making.

Immediately after the disclosure and conference call, Photronics’ stock price allegedly declined approximately 36%.

Discussion

The Photronics complaint is, at its core, a typical earnings guidance and disclosure case. Plaintiffs allege that the company failed to disclose adverse developments affecting demand for its products while continuing to present an optimistic outlook. What makes the complaint noteworthy is not that it arises from geopolitical events, but rather how the plaintiffs incorporate the company’s own discussion of geopolitical uncertainty into their allegations.

Specifically, the complaint points to management’s statements that delayed customer design releases and weaker results were attributable to several factors, including supply chain issues stemming in part from geopolitical uncertainty arising from the U.S.-Iran conflict. Plaintiffs contend that these conditions were already affecting the business before the company disclosed them publicly. In that respect, the alleged securities law violation stems from the adequacy and timing of the company’s disclosures rather than the geopolitical developments themselves.

The allegations against Photronics fit within disclosure themes highlighted in prior D&O Diary commentary. Recent posts have pointed to securities litigation involving Super Micro Computer, Seagate, Kaspi.kz, and Pinterest, where plaintiffs relied on export controls, sanctions, tariffs, or other geopolitical developments to allege that companies failed to adequately disclose the business and financial consequences of changing external conditions.

The lawsuit against Photronics reflects a similar dynamic. It does not allege that the company caused or could have predicted geopolitical developments. Rather, shareholder plaintiffs latch on to management’s subsequent explanation that geopolitical uncertainty was one of several factors contributing to weaker financial performance and argue that investors should have been informed sooner that these headwinds were affecting the company’s outlook.

From a D&O underwriting perspective, the allegations against Photronics serve as another reminder of the importance of disclosure controls and ongoing assessments of evolving business risks. When management later attributes disappointing results to external developments, such as geopolitical uncertainty or supply chain disruptions, plaintiffs may argue that those conditions were already affecting operations and should have been reflected in earlier disclosures, guidance, or risk factor discussions. As this case illustrates, a company’s own explanations for disappointing performance can provide the basis for allegations that prior disclosures were materially incomplete.

In the following guest post, Evan Bundschuh and Burkhard Fassbach share and analyze their research into the geopolitics-related Form 10-K disclosures of 26 large-cap U.S.-listed public companies, as well as 52 small-cap and mid-cap companies, in order to assess the level and significance of public companies’ disclosure statements pertaining to geopolitics. Evan is Vice President at GB&A, a retail insurance brokerage in New York, and Burkhard is a D&O lawyer in private practice in Germany. My thanks to Evan and Burkhard for allowing us to publish their article on this site. Here is their article.

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Introduction

As previously discussed in our prior post, risks related to artificial intelligence are a leading concern among corporate officers, fueling more disclosures and greater transparency in 10k filings. For many companies however, geopolitical risks are an even greater concern – risks that have quickly escalated beginning with Covid’s imposed shutdowns and resulting shipping delays, to constantly shifting tariffs, sanctions, and supply chain risks posed by ongoing armed conflicts. As a result, geo-political disclosures within 10K filings have evolved considerably. Where prior disclosures were more blanketed boilerplate statements acting as catch-alls, the geo-political disclosures that are emerging have become considerably more abundant and specific in nature. The evolution of these disclosures goes hand in hand with recent guidance issued by major law firms advising that public companies (particularly those with international supply chains, substantial import or export exposure, or global sourcing) assess whether tariffs, trade restrictions, or trade policy changes could materially affect their business or results of operations.

To assess the frequency and specificity of the disclosures themselves, we sourced the filings of 26 companies across a variety of sectors in the large cap range – as listed in the Reference Appendix. In addition, we analyzed 52 small cap and mid cap companies. Our study yielded some interesting findings, with considerable variation across sectors and market caps.

Roughly 90% of large cap companies in our sample group referenced specific geopolitical risks within their disclosures. Had the sample omitted US healthcare companies (who lacked meaningful disclosures) that number would have been close to 100%. This is in contrast to approximately 73% of mid cap companies and approximately 50% of the small cap companies who noted such risks within their filings. There was also considerable variation among sectors. Whereas all of the small cap tech, automotive, energy and chemical companies did disclose specific risks, smaller cap companies operating in the consumer products, healthcare, insurance, and finance/banking sectors often lacked any disclosures. It should be noted that these companies were often those with limited foreign risk such as smaller consumer product brands, community banks and domestic insurers. Despite reduced foreign exposures however, such companies may in fact still be exposed to geopolitical risk. Potential cyber-attacks by nation state actors, retaliatory boycotts, and effects of future pandemics (risks cited by some of the larger cap companies) are just a few such examples. The analysis also reveals some thematic clusters:

1. Tariffs and Inflation

Unsurprisingly, among the themes identified in 2025 filings, disclosures related to tariffs were the most prominent, as companies are no longer treating tariff risk as a theoretical future concern but are now acknowledging their wider implications.

At their most basic, a number of companies have cited tariffs and high inflation as creating procurement challenges (including hardware for internal usage) that could affect supply chains‘ timing and profit margins. Consumer goods companies such as Coca-Cola, PepsiCo, and McDonald’s are being particularly affected by the impact of trade measures on agricultural commodities and retaliation in markets where US tariffs have generated political backlash – demonstrating the emergence of reputational risk as a result of geo-political tensions. Interestingly, at least one consumer products company even cited „impacts on consumer confidence and expectations around inflation and currencies“ as a cause of (negative) consumption trends. Disclosure of potential exposure to anti-corruption laws and potential risk of expropriation was also noted among the filings.

The automotive sector is another great example of how such disclosures are evolving. In addition to disclosing reduced market demand and procurement challenges, some of the large auto manufacturers are also disclosing their strategic responses under consideration, including domestic reshoring initiatives, supplier renegotiations, and pricing adjustments, demonstrating that investors‘ expectations have evolved from merely acknowledging known risks, to actively managing them.

2. Export Controls, Trade Policy, Sanctions and Forced Exit Risk

Risks related to China exposures, export controls and sanctions were another common theme among filings, with routine disclosures made by companies operating across a wide range of sectors. These controls, implemented by the agencies such as the BIS (Bureau of Industry and Security) and China’s Ministry Of Commerce, are restricting a wide range of exports including advanced computing chips, processors and semiconductors (used by technology companies), minerals (used by energy companies, auto manufacturers, and data centers), and pharmaceuticals and bio-tech equipment (affecting companies in the bio-tech and pharmaceutical sectors). In addition to creating the potential for market exit scenarios and forced operational bifurcation, such disclosures also pose a unique challenge: how to disclose material risk associated with potential degradation, restriction, or forced exit from the Chinese market without triggering the very regulatory or commercial consequences they are describing.

Technology companies are among those facing the most pressure. The expansion of U.S. Bureau of Industry and Security (BIS) export controls to cover advanced AI training chips (including certain GPU configurations and AI accelerator hardware) has created a direct link between AI strategy and geopolitical risk disclosure. Despite the fact that one of the large tech companies in our cohort doesn‘t provide any consumer-facing services in China, the company still disclosed geopolitical risk related to U.S.–China tensions, including the „risk that escalating trade measures could produce retaliatory restrictions on U.S. digital services companies globally, or that legislative action in the U.S. could restrict the company’s ability to operate in specific jurisdictions“. Similarly, another large tech company’s disclosures cites, „such restrictions could impair its ability to deploy AI infrastructure globally, limit cloud service offerings in certain jurisdictions, or constrain the operation of data center facilities using controlled hardware“. In addition to the potential for retaliatory restrictions, tech companies are also being affected by escalating restrictions on US investments in Chinese technology (and vice versa).

Chemical companies, operating in a particularly volatile regulatory environment, contained some of the more complex disclosures. Many addressing procurement challenges arising from export controls from China, EU compliance exposure related to climate and carbon regulations such as CBAM (the Carbon Border Adjustment Mechanism), and constantly shifting end-Use certificate requirements.

Government mandated supply chain audits and domestic sourcing requirements (emerging from both US and EU regulations) are also creating the potential for supply chain shortages of generic active pharmaceutical ingredients (APIs), resulting in a number of large pharmaceutical companies routinely disclosing risks associated with their active ingredient procurement supply chains – a substantial portion of which runs through Chinese manufacturers. Another notable disclosure made by companies operating in the Chemical sector, was the ingredients potential for U.S.–China trade tensions to create regulatory “whipsawing”; the simultaneous application of conflicting national rules to the same global supply chain.

One of the lesser recognized risks, is the resulting shift in competition. According to one large pharmaceutical company, „In China, we expect to continue to face intense competition by certain generic manufacturers, which has resulted, and may result in the future, in price cuts and volume loss of some of our products.“ Logistics-separation challenges are also emerging. Per the disclosures made by a separate pharmaceutical company, “Finding alternative suppliers if and as necessary due to geopolitical developments or otherwise may not be feasible or could require significant time and expense due to the nature of our products and the need to obtain regulatory approvals”.

Many of the large energy companies disclosed China-related geopolitical risk primarily in the context of liquefied natural gas (LNG) off-take agreements and downstream petrochemical joint ventures. Disclosures in this sector have evolved from more generic „international operations risk“ to now specifically addressing the risk of contract disruption or counterparty non-performance in response to any potential increased tensions between the U.S. and China.

Companies operating in the banking sector provided some of the most detailed disclosures within the analysis. All four institutions disclosed risks associated with the expansion of U.S. and allied country sanctions targeting Russian, Iranian, and other designated entities. Of particular note are disclosures concerning secondary sanctions risk; the potential exposure arising not from direct dealings with sanctioned parties, but from transactions with third parties who may themselves have sanctioned counterparty relationships. The following disclosure made by one large US bank effectively summarizes such risk, „The Firm is also subject to the regulations and economic sanctions programs administered and enforced by the U.S. Treasury’s Office of Foreign Assets Control (“OFAC”) and EU and U.K. authorities which target entities or individuals that are, or are located in countries that are, involved in activities including terrorism, hostilities, embezzlement or human rights violations.“ The resulting secondary-sanctions poses a number of challenges, as it is difficult to quantify and nearly impossible to fully eliminate, making it one of the most challenging geopolitical risk categories for both disclosure and D&O insurance purposes.

3. ESG Tensions

The analysis also reveals growing ESG-related tension. For years, public companies have encountered pressure to commit to robust standards regarding human rights, supply chain transparency, and carbon neutrality. However, many of the recently filed 10k‘s reveal that fulfilling these promises is becoming a liability minefield due to geopolitical fragmentation.

Some companies are also encountering compliance challenges.The filings frommajor pharmaceutical leaders now explicitly address the friction between public ESG pledges and sourcing dependencies in high-risk regions. A primary example is the Uyghur Forced Labor Prevention Act (UFLPA). Companies disclose that government-mandated supply chain audits are often at odds with the limited transparency permitted by local authorities in key manufacturing hubs, creating a “transparency vacuum”.

Similar to the risks posed by AI-washing, companies many also become the target of inaccuracies related to their ESG commitments. From a D&O perspective, this section of the 10-K has evolved from target setting, to more of a defense mechanism against ESG-washing liability. If a company maintains high-profile sustainability ratings or public human rights commitments but fails to disclose the geopolitical obstacles to achieving them, it faces potential securities litigation when they are ultimately unable to live up to their commitments.

The 2025 filings also document a new risk: Divergent stakeholder pressure and”anti-ESG” backlash. According to the filings of one large consumer products‘ company, “There also exists ‘anti-ESG’ sentiment among certain stakeholders and government entities, which may result in scrutiny, reputational risk, product boycotts, lawsuits or market access restrictions… regarding our sustainability policies”. This risk is echoed again in disclosures made by one of the company’s competitors stating, „We could also be subjected to negative responses by governmental actors (such as anti-ESG legislation or retaliatory legislative treatment) or certain stakeholders (such as boycotts, litigation or negative publicity campaigns) that could adversely affect our business.“. Together these disclosures are evidence that meeting ESG targets and international sustainability standards can trigger retaliatory legislative action or boycotts in domestic or foreign markets. This leaves directors in a “whipsaw” position, where compliance with one jurisdiction’s ESG disclosure rules (like the EU’s CSRD) may create reputational or regulatory friction in another.

As a result, some companies have also disclosed amendments to their carbon targets. One large energy provider disclosing, „(our company) has set a number of lower carbon-related ambitions, which may include aspirations, targets, guidance, objectives, metrics, and/or goals…The company has changed and/or eliminated some of these aspirations, targets, and other ambitions and may continue to do so in the future for various reasons, including market conditions; its strategy or portfolio; and financial, operational, policy, reputational, legal and other factors.“

For boards, the 2025 filings signal that ESG related risk has evolved from simply demonstrating social responsibility and meeting targets, to recognizing the logistical challenges and carefully balancing ESG efforts against any potential financial, reputational and litigation risks.

4. Armed Conflicts, Terroristic Attacks, Civil Unrest and Retaliatory Cyber Attacks

Ongoing conflicts were another large driver of geo-political disclosures. These disclosures tended to fall into a few categories.

Many companies in the consumer products, energy, automotive and technology sectors regularly cited risks associated with; the conflicts in Ukraine and the middle east, recent attacks in the Red Sea, China’s threats to annex Taiwan, political conflicts near the Suez Canal, and potential terrorist attacks. These disclosures increased in frequency and specificity for companies that maintained greater foreign operations in affected countries. Among the disclosures observed were: supply chain and procurement challenges, increased cost of energy and agricultural commodities, potential for bans or boycotts, and potential for sabotage, as a result of the conflicts.

Companies in the hospitality and travel sectors are being particularly affected, routinely disclosing the potential for decreased revenue as a result of decreased travel demand, heightened travel security measures, and economic conditions in affected countries.

Several companies in the consumer products and telecom sectors also disclosed their suspension of exports to certain countries involved in current conflicts. These disclosures demonstrate that reputational risk is not limited to retaliation in response to the imposition of tariffs but extends to current and ongoing armed conflicts. Some Financial institutions and energy companies also cited potential credit risk from sovereign debt holders, difficulties in predicting future commodity pricing, and the effects geo-political tensions could have on global financial and energy markets.

Companies operating in the insurance sector are also facing multi-faceted challenges. In addition to the operational risks posed to their own investment portfolios, geo-political tensions are also creating underwriting challenges (through underwriting war risk, political risk policies, and sovereign credit instruments) – with many carriers reassessing their war risk exclusions.

Another risk often cited by companies with larger market caps, and more common among tech companies and financial institutions, was the potential for cyber warfare, retaliatory cyber-attacks, and potential for civil unrest. The following disclosure from a large US bank evidences the risks being addressed in recent filings, „(our company) continues to operate in multiple jurisdictions in the midst of geopolitical unrest or uncertainties, including, among others, those affected by the Russia–Ukraine war and the conflicts in the Middle East, which could expose (us) to heightened risk of insider threat, cyber threats from nation-state actors, hacktivists or other cyber incidents.“

While some companies further went on to disclose the potential risk of attacks on infrastructure and/or infrastructure failures, energy companies are undoubtedly encountering the greatest risk, as evidenced by one large energy provider in our cohort who issued disclosures pertaining to recent drone attacks that could affect their oil fields. While not fully reflected in these most recent filings, the tensions with Iran and the Strait of Hormuz will only add more complexity to future disclosures in the energy sector.

5. Future Pandemics, Viruses and Government Response

A final theme not formally discussed in the above, that we’ll touch upon briefly, were disclosures related to future pandemics, outbreaks and any government responses. Such disclosures were identified within filings across all sectors. Many filings routinely cited potential supply chain and business interruptions, staffing shortages and even changes in consumer behaviors, expectations and competition. Government response risks, including potential business shutdowns, shelter in place orders, and reduced travel was also regularly cited, particularly among hospitality companies. Lastly, a handful of companies specifically referenced the potential for increased litigation (as evidenced by Covid-19), and the potential for market turmoil to illicit stock drops, while also creating challenges accessing capital on favorable terms. 

Conclusion

The 2025 10-K filings demonstrate that geopolitical risk management has evolved from a peripheral operational concern into a core governance obligation. Our analysis shows that corporate disclosures have moved decisively away from blanket, boilerplate language toward granular, sector-specific risk mapping. International volatility now permeates every facet of corporate strategy, and disclosure practices have adapted accordingly.

This shift toward micro-level disclosure carries significant legal and fiduciary implications for directors and corporate officers. The unprecedented specificity found across the 26 large-cap and 52 small- and mid-cap filings analyzed suggests that general awareness of geopolitical risk is no longer a sufficient defense against regulatory scrutiny or shareholder dissatisfaction. As companies increasingly document detailed operational vulnerabilities, boards are correspondingly held to a higher standard of accountability—what was once disclosed in general terms now sets a documented benchmark against which board oversight can be measured.

The 2025 filing season should therefore serve as a wake-up call for corporate boards. To mitigate the rising tide of event-driven Directors and Officers (D&O) liability claims and securities litigation, boards must move from passive risk acknowledgment to active, real-time oversight. Implementing robust, technologically advanced systems to monitor shifting tariffs, trade policies, and global friction points is no longer optional; it is a baseline requirement for safeguarding corporate resilience, preserving investor confidence, and ensuring long-term stability in an increasingly fragmented global market.

Reference Appendix

The following 26 unique companies provided the foundational data for this analysis through their Form 10-K filings for the fiscal year ended December 31, 2025.

Technology

• Alphabet Inc.
• Amazon.com, Inc.
• Meta Platforms, Inc.
• Netflix, Inc.
• Tesla, Inc.

Automotive

• Ford Motor Company
• General Motors Company
• Tesla, Inc. (Also listed under Technology)

Banking

• JPMorgan Chase & Co.
• Bank of America Corporation
• Citigroup Inc.
• Wells Fargo & Company

Insurance

• American International Group, Inc.
• Berkshire Hathaway Inc.

Healthcare / Health Insurance

• UnitedHealth Group Incorporated

Pharmaceutical

• Pfizer Inc.
• Eli Lilly and Company
• Merck & Co., Inc.

Food & Beverage

• The Coca-Cola Company
• McDonald’s Corporation
• PepsiCo, Inc.

Telecommunications

• AT&T Inc.
• Verizon Communications Inc.

Energy / Oil & Gas

• Exxon Mobil Corporation
• Chevron Corporation

Chemical

• 3M Company
• Dow Inc.