Over the last several months, the boards of a number of tech companies have been hit with “follow on” shareholder derivative lawsuits, after the companies were first sued in underlying intellectual property suits. The derivative lawsuits allege that the companies’ boards knowingly allowed their companies to use copyrighted materials to train their AI models, resulting in the underlying IP liability litigation, as well as potential IP-related liability. In the following guest post, Nathaniel French and Mason Dressler take a detailed look at the latest of these lawsuits, filed against Apple’s board. Nate is a partner and Mason is an associate at the Kennedys law firm. Our thanks to Nate and Mason for allowing us to publish their article on this site.

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Intro

Did Apple’s directors and officers know that their teams developing Apple’s AI platform, Apple Intelligence, were utilizing copyrighted, unlicensed datasets of pirated books, movies, songs, voices, and YouTube videos?  This is one of the key questions posed by Phil Rosen in his lawsuit filed against Apple. 

This lawsuit marks a continuation in the trend of shareholders raising derivative lawsuits in which copyright infringement related issues are transformed into claims alleging that directors and officers breached their fiduciary duties.  In the past three months, similar lawsuits have been filed against Microsoft’s board, Nvidia’s board, and Adobe’s board.  It appears that these four lawsuits all follow a similar playbook in which the Plaintiff alleges that various pirated datasets were utilized in training AI technologies, that the board knowingly and intentionally permitted usage of these pirated datasets, and that the board should have taken more care in managing what data was utilized in training AI technologies. 

Moreover, all of these lawsuits stem from the usage of the Books3 dataset, which will likely continue to appear in forthcoming, similar lawsuits.  The Books3 dataset contained over 191,000 fiction and nonfiction books; it was originally produced to be used by non-commercial, open-source projects by independent developers, but as this tidal wave of litigation continues, it is clear that more and more companies may have utilized this data set in their development of AI tools.   

While artificial intelligence may promise to reshape the future, thisnewly filed shareholder derivative action against Apple Inc. asks whether that innovation came at the expense of the company’s legal and ethical obligations.  This lawsuit provides an opportunity for continued analysis of the exposure and risks being shaped by the ongoing development of artificial intelligence, especially as it pertains to directors and officers.

The D&O Lawsuit

On August 14, 2026, shareholder Phil Rosen, on behalf of Apple, filed a lawsuit in the Northern District of California claiming that Apple’s executives and directors knowingly used copyrighted and unlicensed materials to develop Apple’s artificial intelligence services, particularly in regard to the ongoing development of Apple’s AI platform, Apple Intelligence.  In short, Rosen claims that Apple knowingly utilized unlicensed materials, including books, videos, and voices, to train Apple Intelligence models.  Rosen contends that Apple’s leadership understood the risks of utilizing said data, but that they knowingly ignored the copyright and privacy risks.  Rosen alleges that this was a pattern of conduct in which the Defendants followed a model of rushing to pursue innovation while knowingly disregarding the risks of using the pirated data sets.  As such, the suit asserts claims for breach of fiduciary duty, waste of corporate assets, and violations of the Exchange Act, and names as defendants, among others: Apple CEO Tim Cook, Chairman Art Levinson, CFO Kevan Parekh, general counsel Kate Adams, COO Sabih Khan.

Rosen alleges that in June of 2024, Apple began the development of its AI platform, Apple Intelligence.  In order to adequately develop this AI platform, Apple needed to train its language models with vast amounts of data.  Rosen contends that the datasets used to train these models contained copyrighted works.  For example, Rosen alleges that Apple trained its AI with a dataset containing nearly 200,000 pirated works.  Moreover, Rosen further alleges that Apple trained a video-capable version of its AI platform on more than 4 million YouTube videos obtained without authorization and developed commercial voice models by ingesting human speech recordings without obtaining releases from the speakers, allegedly violating Illinois’ Biometric Information Privacy Act.  As previously discussed, this lawsuit marks a continuation of a recent trend in which directors and officers are being implicated for the utilization of copyrighted works used in the development of AI technologies. 

Although Apple utilized many of the same datasets as those identified in previous derivative lawsuits, such as (1) the Books3 pirated dataset and (2) a dataset containing over 70 million video clips from YouTube which were allegedly extracted from YouTube without authorization, Rosen’s complaint further alleges that Apple utilized an additional dataset containing audio recordings obtained from thousands of hours of human speech recordings produced by various Apple applications.  For example, Rosen alleges that Apple utilized information obtained from live voicemail, iMessage audio transcription, and Siri. 

According to Rosen, this behavior comes amidst a backdrop of frequent and ongoing litigation against similar technology companies based upon the utilization of pirated materials during the development of AI technologies.  Rosen cites to the $1.5 billion in damages paid by another AI development company, Anthropic, alongside similar BIPA lawsuits filed against Microsoft, Alphabet, and Meta Platforms, Inc., in bolstering his argument that Defendants should have known about the risks of using these datasets. 

Many of these lawsuits stem from the groundbreaking $1.5 billion Anthropic settlement in December of 2025.  This lawsuit broke the tidal wave of litigation related to the usage of pirated datasets in developing artificial intelligence models.  As described by one of the authors involved in the litigation, the Anthropic settlement ultimately was “about copyright theft. And today the extent of this theft has been revealed. Thousands of jobbing writers around the world are affected. This is a landmark ruling and the tip of the iceberg. The Anthropic Settlement has made very clear that authors will not stand for the unlawful use of their work. The message to AI companies who steal authors’ works is clear: you need to pay.”  As we have seen in the months after the Anthropic settlement, shareholders are growingly increasingly aware of the risks companies willingly incurred while pursuing AI innovation at light speed.  These lawsuits also are following a similar gameplan in which a follow-on suit is filed shortly after the first copyright-based action. 

Rosen contends that Apple’s executives and directors were aware of these issues and ignored what he characterizes as clear warning signs from similar litigation against other AI developers.  The complaint alleges that Apple’s directors and officers owed fiduciary duties of care, loyalty, good faith, oversight, and legal compliance to Apple and its shareholders.  According to the complaint, these duties required them to act in the company’s best interests, exercise prudent supervision over its operations, ensure compliance with applicable laws, maintain adequate internal controls, and provide accurate disclosures to investors. Rosen contends that the defendants breached these obligations by allegedly permitting the use of copyrighted works and biometric voice data in the training of Apple’s AI models, failing to prevent or remedy related compliance risks, and approving or allowing misleading statements concerning Apple’s AI practices, privacy protections, and risk management.

As a result of the Defendants’ behavior, Rosen contends that Apple is now required to “defend itself in copyright infringement and BIPA violation cases” and is “facing potentially massive liability and related costs” along with the potential loss of customers. 

Discussion This lawsuit against Apple marks the continuation of significant challenges brought by shareholders due to the unlicensed utilization of pirated data sets and continues a recent trend of D&O related claims arising from follow-on litigation related to data used in training AI models.  Rosen characterizes the behavior of Apple as constituting a model of “ask forgiveness not approval” wherein their rushed innovation without paying attention to ongoing risks associated with using pirated datasets.  This allegation is nearly identical to allegations brought against Adobe’s board, signalling that potential Plaintiffs are beginning to utilize a standard playbook in which they transform copyright actions into derivative breach of duty actions brought against directors and officers.  While this complaint is newly filed, it will be interesting to follow this lawsuit in tandem with the previous lawsuits filed against similar companies like Adobe and Microsoft. 

Moreover, this lawsuit against Apple underlines an additional instance of follow-up litigation being brought after original copyright claims were filed.  In September of 2025, copyrighted book authors filed their class action lawsuit against Apple, see Hendrix v. Apple, Inc.  Then, in April of 2026, intellectual property video creators filed their class action lawsuit against Apple, see Ted Entertainment, Inc. v. Apple, Inc.  Thus, this lawsuit is indicative of the fact that insurers can likely expect these derivative, follow-on lawsuits will be filed shortly after the original copyright claim. 

The Apple complaint continues a trend of directors and officers facing potential liability in light of the materials used to train AI models, especially during a time in which technology companies are racing to develop better models faster, almost akin to the space race of the 1960s.  It further highlights the ways in which shareholders are growing increasingly aware of the risks involved with development of artificial intelligence.  As such, it is increasingly important for directors and officers to continually work to understand the scope and depth of artificial intelligence usage and development within their companies.

On August 21, 2026, when the Tioga-Franklin Saving Bank of Philadelphia was closed by banking regulators, it became the fifth U.S. bank to fail this year. The five failures so far in 2026 comes after only two banks closed in 2024 and in 2025, respectively. News of the most recent closure left me wondering if perhaps there was something to worry about with the recent apparent uptick in bank failures. Turns out, I am not the only one wondering about this. On August 26, 2026, Law.com ran an article considering what might be causing the recent increase in the number of bank failures. While the Law.com article concludes that the banks closed this year mostly failed due to operating problems specific to the failed institutions involved, there is still enough there to take a closer look at what is going on.

The five bank failures in 2026 YTD matches the highest number of closures since 2023 (the year that Silicon Valley Bank failed), when there were also five bank failures. Five bank failures is the highest annual number in any year since 2017 (when there were 8). Looking at the number of bank failures by year yields some interesting observations, such as, for example, that there were no bank failures at all in the years 2018, 2021, and 2022. On the other hand, 507 banks failed during the period 2008 through 2014, with the 21^st century’s highest annual number of closed banks in the year 2010 (157).

The higher numbers of failures during the global financial crisis years does make the five bank failures so far this year look pretty paltry, by comparison. But even if that is so, it is still worth asking the question, is something going on with the recent uptick in bank closures?

Reviewing the banks that have closed this year yields a few observations. First, each of the failed banks was located in a different state, suggesting that there likely is not some regional thing going on. Second, all of the five banks were relatively small banks by asset size. The largest of the banks to fail, the Community Bank and Trust of LaGrange, Georgia, had only $228 million in assets at the time of closure. The others were smaller, in some cases a lot smaller.

The failed bank review that the FDIC conducts with respect to failed bank institutions suggests (shown, for example, here) that the recurring themes behind the failures were capital erosion, poor asset quality, weak risk management, and regulatory criticisms regarding unsafe and unsound practices.

Looking at the FDIC review also suggests that the failures reflect the traditional operating challenges facing small community banks, rather than the liquidity-run or interest-rate-risk problems that were behind the high-profile large bank failures in 2023 (Silicon Valley Bank, Signature Bank, and First Republic).

The FDIC’s most recent Quarterly Banking Profile, dated August 25, 2026 (here), suggests that overall the banking industry in the U.S remains sound, with strong capital buffers, high earnings, and steady domestic deposit growth.

According to a recent report from Fitch, the largest U.S. banks “easily” passed the most recent Dodd-Frank Act Stress Test by the Federal Reserve.  Overall, there is no apparent reason to suspect that the increase in the number of bank failures so far this year represents a larger problem or presages a likely coming increase in the number of bank failures.

However, there is still the fact that at least some smaller community banks are struggling in this environment. The question for D&O underwriters to ask is whether there are others of these small banks that are struggling with the same challenges that led to the closure of the five banks so far in 2026. The bank failures suggest that at least some banks, mostly smaller community banks, may also be under stress, which is an important consideration when it comes to comparable banks.

Some readers may think that five bank closures is a really small number of bank failures to worry about. I worry because I spent the first ten years or so of my career in the 80s and early 90s working on failed financial institution insurance coverage disputes arising in the wake of the Savings and Loan Crisis. Later, in the 2008-2014 time frame, I spent years working on disputes arising out of the failures of many financial institutions during the global financial crisis. I even got caught up in the backwash from the failure of the three large banks in 2023.

If there is any steady theme across my many-decades-long career, it is that every few years the financial sector blows up and causes (or at least threatens) massive damage to the overall economy.

For that reason, in my view, it is worth paying attention when the number of bank failures starts to increase. Long-time observers know that it is worth being vigilant when it comes to the banking sector.

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On August 21, 2026, when the Tioga-Franklin Saving Bank of Philadelphia was closed by banking regulators, it became the fifth U.S. bank to fail this year. The five failures so far in 2026 comes after only two banks closed in 2024 and in 2025, respectively. News of the most recent closure left me wondering if perhaps there was something to worry about with the recent apparent uptick in bank failures. Turns out, I am not the only one wondering about this. On August 26, 2026, Law.com ran an article considering what might be causing the recent increase in the number of bank failures. While the Law.com article concludes that the banks closed this year mostly failed due to operating problems specific to the failed institutions involved, there is still enough there to take a closer look at what is going on.

The five bank failures in 2026 YTD matches the highest number of closures since 2023 (the year that Silicon Valley Bank failed), when there were also five bank failures. Five bank failures is the highest annual number in any year since 2017 (when there were 8). Looking at the number of bank failures by year yields some interesting observations, such as, for example, that there were no bank failures at all in the years 2018, 2021, and 2022. On the other hand, 507 banks failed during the period 2008 through 2014, with the 21^st century’s highest annual number of closed banks in the year 2010 (157).

The higher numbers of failures during the global financial crisis years does make the five bank failures so far this year look pretty paltry, by comparison. But even if that is so, it is still worth asking the question, is something going on with the recent uptick in bank closures?

Reviewing the banks that have closed this year yields a few observations. First, each of the failed banks was located in a different state, suggesting that there likely is not some regional thing going on. Second, all of the five banks were relatively small banks by asset size. The largest of the banks to fail, the Community Bank and Trust of LaGrange, Georgia, had only $228 million in assets at the time of closure. The others were smaller, in some cases a lot smaller.

The failed bank review that the FDIC conducts with respect to failed bank institutions suggests (shown, for example, here) that the recurring themes behind the failures were capital erosion, poor asset quality, weak risk management, and regulatory criticisms regarding unsafe and unsound practices.

Looking at the FDIC review also suggests that the failures reflect the traditional operating challenges facing small community banks, rather than the liquidity-run or interest-rate-risk problems that were behind the high-profile large bank failures in 2023 (Silicon Valley Bank, Signature Bank, and First Republic).

The FDIC’s most recent Quarterly Banking Profile, dated August 25, 2026 (here), suggests that overall the banking industry in the U.S remains sound, with strong capital buffers, high earnings, and steady domestic deposit growth.

According to a recent report from Fitch, the largest U.S. banks “easily” passed the most recent Dodd-Frank Act Stress Test by the Federal Reserve.  Overall, there is no apparent reason to suspect that the increase in the number of bank failures so far this year represents a larger problem or presages a likely coming increase in the number of bank failures.

However, there is still the fact that at least some smaller community banks are struggling in this environment. The question for D&O underwriters to ask is whether there are others of these small banks that are struggling with the same challenges that led to the closure of the five banks so far in 2026. The bank failures suggest that at least some banks, mostly smaller community banks, may also be under stress, which is an important consideration when it comes to comparable banks.

Some readers may think that five bank closures is a really small number of bank failures to worry about. I worry because I spent the first ten years or so of my career in the 80s and early 90s working on failed financial institution insurance coverage disputes arising in the wake of the Savings and Loan Crisis. Later, in the 2008-2014 time frame, I spent years working on disputes arising out of the failures of many financial institutions during the global financial crisis. I even got caught up in the backwash from the failure of the three large banks in 2023.

If there is any steady theme across my many-decades-long career, it is that every few years the financial sector blows up and causes (or at least threatens) massive damage to the overall economy.

For that reason, in my view, it is worth paying attention when the number of bank failures starts to increase. Long-time observers know that it is worth being vigilant when it comes to the banking sector.

While public attention has focused on Walter’s ownership interests in major sports franchises, the underlying investigations reportedly involve questions surrounding affiliated private credit investments, related-party transactions, and disclosure practices involving insurer assets. The circumstances remain ongoing, and no wrongdoing has been alleged. Because the investigations and related proceedings remain ongoing and the relevant facts remain under development, the term “Walter matter” is used throughout this article as a neutral description of the situation.

As discussed below, the Walter matter offers an instructive case study of how questions involving affiliated transactions can develop into significant regulatory scrutiny and potential D&O liability exposures.

Background

Through Guggenheim Partners, TWG Global, and Group 1001, Walter oversees businesses spanning asset management, insurance, private credit, and professional sports ownership. Group 1001 owns several life insurance companies, including Delaware Life Insurance Company and Clear Spring Life and Annuity Company, which invest significant portions of their assets in private credit and other alternative investments sourced through affiliated businesses. The investigations focus in part on whether certain private credit investments sourced through affiliated entities were properly identified and disclosed as related-party transactions.

Walter recently drew widespread attention after reportedly agreeing to sell the Los Angeles Lakers to former Disney CEO Bob Iger and Thrive Capital founder Joshua Kushner. According to media reports, the transaction values the franchise at approximately $12.5 billion, roughly $2.5 billion more than the reported valuation when Walter acquired a controlling interest in the team just 14 months earlier. The timing of the sale has generated additional interest because it coincides with ongoing federal and regulatory scrutiny involving insurance companies within Walter’s broader business network.

According to public reports and regulatory disclosures, Delaware Life Insurance Company and Clear Spring Life and Annuity Company received federal grand jury subpoenas in February 2026 in connection with an investigation being conducted by the U.S. Attorney’s Office for the Southern District of New York. The companies disclosed that the SEC is conducting a parallel investigation focused on whether certain private credit investments introduced by an affiliate should have been treated and disclosed as affiliated or related-party transactions. The companies have stated that they are cooperating, and no charges have been filed against Walter or any of the affiliated entities.

Following receipt of the subpoenas, the insurers conducted an internal review that identified disclosure and classification errors involving certain private credit investments connected to companies owned, controlled, or otherwise affiliated with Walter. As a result, Delaware Life restated prior disclosures and reclassified a substantial number of investments previously reported as unaffiliated. According to public reports, affiliated investments increased from roughly 3% of invested assets to nearly 40% following the review. Fitch Ratings subsequently placed Delaware Life on Rating Watch Negative, citing concerns regarding governance, financial reporting, and investment oversight.

Discussion

Although the connection to professional sports franchises continues to capture public attention, the Walter matter is more relevant to D&O underwriters as an illustration of the risks that can arise when private credit operations and insurer balance sheets become closely intertwined.

The federal and SEC investigations, together with Fitch’s negative rating action, highlight growing regulatory concerns surrounding the integration of private credit platforms and life insurance companies. Over the past decade, alternative asset managers have acquired insurers or entered into insurance partnerships to access permanent capital. In response, regulators have focused more closely on whether these arrangements create conflicts, concentrations of risk, or affiliated exposures that are not fully reflected in public disclosures. The Walter matter represents one of the clearest examples of those concerns evolving into active regulatory scrutiny.

In particular, the reported investigations center on whether investments funded by insurer assets were properly characterized and disclosed as Walter-affiliated transactions. Regardless of the ultimate outcome, the matter demonstrates regulators’ willingness to look beyond legal form and examine the economic substance of a transaction. Investments that appear independent on paper may attract scrutiny if their underlying relationships suggest otherwise. For D&O underwriters, the key question may be whether governance and oversight processes surrounding private credit investments can identify and manage affiliated transaction risks before they become disclosure issues.

The reported restatement at Delaware Life may also be instructive. The matter originated with questions about whether certain investments had been properly classified and disclosed as affiliated transactions. What began as a disclosure question ultimately evolved into a much broader regulatory and governance matter. The episode illustrates how a disclosure issue can quickly develop into a broader governance and liability event. Accordingly, D&O underwriters may want to evaluate companies with significant affiliated investments on asset quality and effectiveness of their oversight and disclosure processes.

The Walter matter also highlights the unique risks that arise when insurance company capital is deployed into affiliated investment strategies. Because policyholder funds are involved, insurers operate under an elevated level of regulatory scrutiny. As more private credit sponsors seek capital through insurance acquisitions and partnerships, regulators are likely to remain focused on how these relationships are structured, monitored, and disclosed. For D&O underwriters, that could place increased importance on understanding the degree of integration between insurers and affiliated investment operations.

More broadly, the Walter matter suggests that future D&O exposures may arise not just from traditional securities claims but also governance challenges embedded within complex private-market organizations. As private credit, insurance, private equity, and operating businesses continue to converge, organizational complexity itself may become a meaningful D&O underwriting consideration. Companies whose organizational complexity makes it difficult to understand the nature of affiliated relationships and sources of capital may warrant even closer scrutiny.

The ultimate outcome of the Walter matter, including the federal investigations, remains uncertain, and no wrongdoing has been alleged. Even so, the ongoing developments serve as a reminder that in today’s private credit ecosystem, significant D&O risks can arise when companies fail to recognize, oversee, and accurately disclose the relationships underlying their transactions.

Every year after Labor Day, The D&O Diary takes a step back to survey the most important current trends and developments in the world of Directors’ and Officers’ liability and insurance. This year’s review is set out below. As the following discussion shows, this is a particularly interesting time in the world of D&O.

AI-Related Claims Are Already Mounting, But What May Be Ahead?

In a very short time, artificial intelligence (AI) has become one of the most important forces in the economy. As the Wall Street Journal put it in an August 3, 2026, article (here), the AI Boom has already “transformed” the American economy “beyond recognition.”

AI technology’s economic significance is reflected in extraordinary investor enthusiasm for AI-related companies. In addition, several big technology companies have committed to AI-related capital expenditures measured in the hundreds of billions of dollars. Given the sheer scale of the AI dynamic and given the seemingly boundless extent of investor enthusiasm for AI companies, it is hardly surprising that the rise of AI has also translated into D&O-related litigation, as companies eager to ride the AI wave fall short of aspirations or investor expectations.

Indeed, AI-related corporate and securities litigation has been one of the most important D&O claims trends so far in 2026. As of August 31, 2026, as many as 22 AI-related federal court securities class action lawsuits have been filed this year, compared to 16 in all of 2025. The AI-related D&O claims also include a number of shareholder derivative lawsuits, as well as AI-related enforcement actions, as noted below.

The most prevalent kinds of allegations in these AI-related lawsuits involve what has become known as “AI washing” – that is, allegations that the defendant companies overstated their AI-related capabilities, opportunities, or prospects. The August 26, 2026 settled enforcment action the SEC filed against Genesis AI and its CEO is a good illustration of this type of AI washing claim. In its complaint, the SEC alleged that the company had raised over $5 million from over 4,000 investors in a crowdfunding campaign by misrepresenting the company’s financial prospects and the viability of its purported marketplace for AI models. The company and the CEO agreed to pay fines, penalties, and interest. Readers will want to note that this AI-washing enforcement action involved a private company, underscoring the fact that AI-related D&O claim risk is not limited to just public companies.

But while AI-washing type allegations remain important in many AI-related lawsuits, AI-related litigation in recent months has included many other types of allegations. We detail below four other categories of allegations that have been raised in AI-related lawsuits: allegations of not involving overstatement of AI prospects but rather understatement of AI risk; allegations specifically concerning AI infrastructure build-out and strategies; allegations concerning misrepresentations about AI spending; and, finally, allegations in follow-on derivative lawsuits alleging that company executives’ decisions and actions led to underlying AI-related litigation. Many of the AI-related lawsuits involve more than one of the various types of allegations we identify.

Here are the four additional categories of allegations.

AI Risk Disclosure Allegations: One recent example of a case involving allegations that the defendant company understated its AI-related risk is the lawsuit filed in August 2026 against the software and services company Intuit. As discussed here, the plaintiffs alleged that while the company had emphasized its business prospects from its adoption of AI, the company failed to disclose the extent to which AI was simultaneously creating competitive pressures for key parts of its business. Similarly, in their June 2026 lawsuit filed against ZoomInfo Technologies (discussed here), the plaintiffs alleged that the company accurately described its AI initiatives but failed to disclose the risk that AI was threatening to disrupt its long-term business model.

AI Infrastructure-Related Allegations: In cases involving AI infrastructure companies, the defendant companies are alleged to have made misrepresentations regarding their infrastructure build-out and strategies. For example, in March 2026, a plaintiff shareholder filed a securities class action lawsuit against the engine and power systems company Power Solutions International, alleging that the company’s new strategy of providing power generation solutions for AI data centers had fallen short of the company’s representations.  Other lawsuits involving AI infrastructure companies’ misrepresentations include the January 2026 lawsuit against the start-up AI energy supply company Fermi (discussed here) and the lawsuit against the AI cloud computing data center company Coreweave (here).

AI Spending-Related Allegations: The huge AI-related capital expenditures companies are making have also generated their own category of AI-related claims, as shareholder plaintiffs allege that companies have not been sufficiently forthcoming about the extent of their AI-related spending. An example of this type of case is the February 2026 lawsuit filed against Oracle (discussed here). As discussed here, the plaintiffs in that case alleged that the company failed to disclose that: “(1) the Company’s AI infrastructure strategy would result in massive increases in CapEx without equivalent, near-term growth in revenue; (2) the Company’s substantially increased spending created serious risks involving Oracle’s debt and credit rating, free cash flow, and ability to fund its projects, among other concerns.”

There have been a number of other recent cases alleging that the company defendants have not sufficiently informed investors about the companies’ massive ramp-up in AI-related spending, including, for example, the June 2026 lawsuit filed against Microsoft (discussed here), the July 2026 lawsuit filed against Israeli web platform development company Wix (discussed here), and the August 2026 lawsuit filed against the cloud computing firm Rackspace Technology (discussed here). These “AI spend” lawsuits highlight growing investor scrutiny of whether management adequately disclosed the financial risks, costs, and tradeoffs associated with aggressive AI initiatives.

AI Follow-On Derivative Litigation: One further type of AI-related lawsuit that has been prevalent so far this year has been “follow-on” derivative lawsuits in which it is alleged that company management knowingly used copyrighted materials to develop their company’s AI products and models, which in turn caused the company to be sued by copyright holders for intellectual property violations. A number of large technology companies have been hit with these kinds of lawsuit in recent months, including, for example, Adobe (about which see here), Microsoft (here), Nvidia (here), and Apple (here).

These “follow-on” lawsuits also represent interesting examples of what has been called “silent AI” – that is, the way in which AI-related liabilities that would not typically be covered under a D&O insurance policy (in this case, intellectual property liability) can translate into a type of liability presumptively covered under the typical D&O insurance policy (in this case, breach of fiduciary duty allegations).

The emergence of this type of “silent AI” exposure is one reason that at least some insurers have been flirting with the idea of attempting to incorporate various types of AI-related exclusions on their management and professional liability policies. Given that the D&O insurance market remains in a soft market, these kinds of exclusions are unlikely to become widespread. However, if the market were to turn, it could well be that these kinds of AI-related exclusions could become more prevalent.

One overriding fear as AI infrastructure spending has mushroomed and as the financial markets have been roiled by a phenomenon that can only be described as an AI mania is the possibility that the AI frenzy is a huge bubble that could leave an enormous mess if the bubble were to burst. This possibility is certainly something that those of us who lived through the Dot Com era can easily picture.

Anyone looking for signs that things are getting frothy need look no further than the media reports that in connection with its planned IPO, Anthropic plans to identify potential revenue of $30 trillion. (By way of comparison, the current U.S. GDP is approximately $32 trillion).

In addition, a significant portion of AI activity is being driven by what is in effect “circular financing” – as, for example, where Nvidia agrees to finance a purchaser’s acquisition of Nvidia’s chips, and in return Nvidia agrees to acquire or backstop the purchaser’s computing power or other product or services. In this kind of structure, a mishap anywhere in the sequence could have cascading economic effects.

And while the overall amount of debt involved in the AI buildout is staggering, what is even more alarming is that, according to the Wall Street Journal (here), apparently much of the AI debt is being carried off the debtors’ balance sheets (to the tune of $3 trillion, just for the top nine tech companies).

Creative financing, obscure financial reporting, fantastic financial projections – these are the kinds of practices that in the past have preceded significant market corrections.

And if that were not enough, the reality is that the AI buildout is facing an increasing political backlash, as voters increasingly voice their concerns not just about data center construction but also about AI’s potential employment displacement effects. A hostile voter population could have a potentially devastating impact on some of the more ambitious AI plans, particularly if politicians eager to ingratiate themselves with voters turn on AI companies as convenient political targets.

For now, the picture is complex and uncertain. However, it seems probable that in the weeks, months, and years ahead, AI will be an increasingly charged source of D&O risk. There is a lot here for D&O underwriters to worry about.

Our views about the D&O underwriting implications of these AI-related developments are set out in Sarah Abrams’s June 2026 post, here.

What is Next with Geopolitics and D&O Risk?

In the current fraught global political and economic environment, businesses face a host of geopolitical risks. Among many other things, companies must deal with the current Trump administration’s shifting tariff policies; armed conflict in Ukraine and the Middle East; tensions in the South China Sea; increasing governmental use of sanctions, export restrictions, and technology controls; and supply chain concentration or disruptions.

The claims risk from geopolitical developments has been particularly apparent with respect to the Trump administration’s tariff policies. The tariff-related claims risk has involved both regulatory enforcement actions, on the one hand, and private civil litigation, on the other.

In a post earlier this year, Sarah Abrams detailed the claims risks associated with tariff enforcement, including in particular the possibility of False Claims Act claims brought against companies the administration alleges have sought to evade the tariffs. The administration has actively organized investigative personnel and processes to pursue tariff enforcement. Notably, these regulatory claims are not limited just to public companies; indeed, many of the enforcement actions have involved private companies.

In addition to the regulatory risks associated with tariff enforcement, companies also face the risk of private civil litigation associated with tariff-related disclosures. An example of this type of litigation is the securities class action lawsuit filed in June 2026 against the solar panel company First Solar, discussed here. The company’s products manufactured overseas are subject to tariffs imposed by the Trump administration. The lawsuit alleges that the company overstated its capacity to manage the impact of U.S. tariff policy and understated the extent to which its operational responses to U.S. tariff policy would negatively impact its financial results.

Other companies have faced securities litigation involving tariff-related disclosures. For example, and as discussed here, in the February 2026 securities class action lawsuit filed against the industrial clothing manufacturer Lakeland Industries, the plaintiff shareholder alleged, among other things, that the company had failed to disclose the extent to which the company’s financial performance was deteriorating as a result of “tariff-related headwinds.”

Similarly, and as discussed here, in March 2026, the social media company Pinterest was hit with a securities suit alleging that the company “overstated its ability to manage the impact of U.S. tariffs on the macroeconomic environment in which the Company operated, including the foreseeable impact on its advertising partners.”

Tariff-related issues remain critically important even though various courts have declared the Trump administration’s IEEPA tariffs (discussed here) and Section 122 tariffs (discussed here) to be unlawful. Notwithstanding these court setbacks, the Trump administration has continued to pursue its aggressive tariff policies, most recently seeking to impose tariffs in reliance on Section 301 of the Trade Act of 1974. These tariffs, too, have been the subject of a court challenge. In its recent imposition of tariffs on Canada, the Trump administration is relying on Section 338 of the Tariff Act of 1930 (the infamous Smoot-Hawley Act), which has never previously been used by a U.S. President to impose tariffs.

The current Trump administration clearly intends to continue to use tariff policies as part of its global trade strategy. The likelihood, therefore, is that companies will continue to face tariff-related operating and financial challenges, and it seems likely that the risk of tariff-related claims will continue in the months ahead.

The tariff-related enforcement actions and civil lawsuits are not the only claims that have risen out of geopolitical issues. In recent months, there have been a variety of corporate and securities lawsuits arising from other geopolitical developments affecting companies’ operations or financial performance.

For example, and as discussed here, in late March 2026, the data storage and computing systems company Super Micro Computer was hit with a securities suit alleging that the company failed to disclose that a significant portion of its China sales were made in violation of U.S. export control laws and regulations.

Similarly, as discussed here, in July 2026, the semiconductor component parts manufacturer Photronics was sued in a securities class action lawsuit after the company reported disappointing financial results, among other things, because the U.S.-Iran conflict had increased macroeconomic uncertainty and affected customer decision-making.

In addition, in August 2026, and as discussed here, the energy fuel cell company Bloom Energy was sued in a securities class action lawsuit after a short-seller report disclosed that the company was sourcing its supply of the rare earth metal scandium from or through China, contrary to the company’s prior representations that it was not dependent on Chinese scandium supplies.

Tensions and trade frictions with China represent something of a theme in a number of recent class action lawsuit filings. For example, and as discussed here, the Chinese technology company Alibaba was hit with a securities suit in August 2026, in which the plaintiff alleged, among other things, that the company had failed to disclose the possibility that its links to Chinese regulatory authorities could expose the company to designation as a “Chinese military company” under U.S. law.

Another geopolitical issue that can have an impact on D&O risk is the enforcement of anti-money laundering laws (AML). For example, as discussed here, in August 2026 a shareholder filed a securities suit against the British money transfer company Wise. The lawsuit was filed after the company failed to obtain a U.S. banking charter following revelations that Belgian authorities were investigating the company for possible AML violations.

In short, geopolitical risks present companies with a host of complicated operational and financial challenges. It is already clear that these challenges can translate into corporate and securities litigation. The challenges, and the related litigation threat, could potentially become of much greater significance in the months ahead.

Market Manipulation Schemes Proliferate

Market-manipulation litigation emerged as a notable securities class action lawsuit filing trend in 2026, involving at least 14 related class actions filed year-to-date (as of August 31, 2026). Although the allegations range from pump-and-dump schemes and stock promotion to spoofing and short-squeeze activity, the cases generally assert that the defendant’s manipulative trading practices artificially affected stock prices, resulting in significant investor losses.

A July 2026 Bloomberg Law report noted that in light of reduced SEC enforcement activity and SEC investor distributions, private securities litigation may be playing an increasingly important role in policing alleged market-manipulation schemes.

Many of the market manipulation securities lawsuits filed this year involve foreign, often China-based, low-float issuers. Recent examples include suits against Ostin Technology Group and Megan Holdings, where plaintiffs alleged that stock-promotion activity, limited public float, and concentrated ownership contributed to dramatic stock-price increases followed by steep declines. Similar allegations have been asserted against CLEU, PomDoctor, ChowChow Cloud, Concorde International, and iTonic Holdings. Several of these actions also underscore the growing role of social media in alleged pump-and-dump schemes, with plaintiffs asserting that coordinated online promotion through social-media platforms, investor forums, and digital marketing campaigns contributed to inflated stock prices and heightened trading activity.

The developing trend is not limited to social-media-driven promotion schemes. The February 2026 securities suit against Richtech Robotics alleges that the company overstated the significance of its relationship with Microsoft in order to enhance investor enthusiasm surrounding its AI initiatives, contributing to a substantial increase in its share price immediately before an at-the-market capital raise.

Notably, in March 2026, a federal court dismissed claims against Meta Platforms arising from alleged third-party stock-promotion activity, concluding that Meta was not liable for content posted by users on its platform, though plaintiffs were granted leave to amend. While the decision may limit efforts to hold social-media platforms directly responsible for alleged pump-and-dump activity, it has not diminished plaintiffs’ willingness to pursue claims against issuers, insiders, promoters, underwriters, and other participants allegedly involved in the underlying schemes.

Beyond stock-promotion and disclosure-based allegations, plaintiffs are increasingly targeting other forms of alleged market manipulation. The Genius Group/Citadel litigation centers on alleged spoofing activity by the defendant asset manager, while the Pentwater Capital case involves claims that the defendant’s short squeeze artificially inflated Avis Budget Group’s share price, allowing the defendant to profitably offload its Avis shares before an ensuing price decline. These cases reflect plaintiffs’ growing willingness to pursue market-manipulation claims under Sections 9(a) and 10(b) of the Exchange Act.

For D&O underwriters, characteristics that may make a security more susceptible to volatility or trading distortions, including limited float, concentrated ownership, heavy short interest, or unusual trading activity, may warrant increased scrutiny. Whether courts permit these market-manipulation cases to proceed will be an important issue to monitor, but if current filing levels persist, market-manipulation litigation could become one of the most significant emerging securities litigation filing trends.

Private Credit–Related Risk Leads to D&O Claims, D&O Risk

Private credit refers to lending conducted outside the traditional banking system. Over the last decade, private credit funds and other non-bank lenders have become an increasingly important source of financing for private-equity-backed and middle-market companies. As banks have retreated from portions of the lending market because of regulatory and capital constraints, private lenders have stepped in to fill the gap. What was once a niche asset class has grown into a market with more than $2 trillion in assets under management globally, making private credit one of the fastest-growing segments of the financial services industry.

The sector’s rapid expansion has attracted substantial investor capital and increased scrutiny of valuation practices, governance, fee structures, and potential conflicts of interest. As credit conditions have become more challenging, many of those issues are now beginning to surface in litigation.

Private credit’s rapid growth has brought increased attention to the features that make the asset class distinct, including illiquid valuations, complex fee structures, and liquidity management challenges. In March 2025, The D&O Diary asked a straightforward but increasingly important question: Is private credit a good D&O risk? As market stresses have emerged, many of the issues underlying that question are now being tested through borrower bankruptcies and a growing wave of litigation against private credit managers, advisers, and business development companies.

The private credit litigation wave continues to broaden. What began with securities class actions against BlackRock TCP Capital, Blue Owl, Hercules Capital, and FS KKR alleging inflated asset valuations, deteriorating loan performance, liquidity pressures, and inadequate disclosures has expanded into a new generation of claims targeting the business models and compensation structures of private credit advisers. At the same time, distress among private credit borrowers is creating a separate source of exposure, as demonstrated by the Tricolor Holdings bankruptcy and follow-on criminal and civil litigation. Together, these developments suggest that litigation risk is increasingly arising both at the lender level and within the private companies that rely on private credit financing.

A significant development in this trend is the emergence of Section 36(b) lawsuits under the Investment Company Act of 1940. In derivative actions against Blue Owl, Ares, and FS KKR, plaintiffs allege that advisers collected excessive fees because their compensation was tied to valuations of illiquid private credit investments and, in some cases, payment-in-kind (PIK) income that may never be realized in cash. The suits contend that advisers benefited financially from valuation practices that increased assets under management and incentive compensation.

Excessive fee lawsuits allege that private credit advisers faced an inherent conflict by both valuing illiquid portfolio assets and collecting fees tied to those valuations. The key issue to watch is whether courts allow these Section 36(b) derivative claims to proceed past the motion-to-dismiss stage. While any rulings would not be binding outside their jurisdictions, they could provide a roadmap for future claims against other private credit managers.

Another important trend to watch is whether deterioration in private credit portfolios translates into private company D&O exposure at the portfolio-company level. The Tricolor bankruptcy highlighted how allegations involving underwriting, oversight, disclosure, and governance failures can emerge when highly leveraged companies encounter financial distress. As more private credit-backed companies face restructurings, bankruptcies, and liquidity challenges, stakeholders may increasingly scrutinize board decision-making, sponsor oversight, lender influence, and related-party transactions, potentially creating new D&O risk for private company directors and officers.

More broadly, these cases signal that private credit litigation is evolving beyond traditional disclosure-based claims. As borrower defaults, restructurings, non-accrual loans, and redemption pressures continue to test private credit portfolios, investors are increasingly focusing on valuation methodologies, incentive compensation, governance practices, and potential conflicts of interest. Distress within the asset class also appears likely to remain a significant theme.

At the same time, private credit’s reach continues to expand into new pools of capital. The Wall Street Journal recently reported that private credit managers are increasingly targeting the U.K.’s pension and annuity markets, creating additional avenues through which risks associated with the asset class may be transmitted to institutional investors. The outcome of the fee-related derivative lawsuits, together with future litigation arising from distressed private credit borrowers and any increase in borrower bankruptcies, may help define the next phase of D&O and E&O exposure across the private credit ecosystem.

Cybersecurity, a Perennial D&O Risk, May be Poised for Transformative Change

Cybersecurity-related issues have long been recognized as an important potential source of D&O claims and liability. More recently, other D&O claims concerns have become more conspicuous, and cybersecurity-related issues have been less prominent. But while cybersecurity-related D&O risks may feature less prominently than in the past, cyber risk remains an important source of D&O liability exposure, and cybersecurity related D&O lawsuits continue to be filed. And even more significantly, the nature of the underlying cyber risk may itself be changing as well, as discussed below.

In an example of the continuing D&O litigation risk associated with cybersecurity, in May 2026, a plaintiff shareholder filed a securities class action lawsuit against cloud data storage company Snowflake, alleging, among many other things, that the company failed to disclose shortcomings in its customer data security arrangements that allegedly allowed key customers to experience a data breach. 

In a more recent case, in August 2026, as discussed here, Israeli-based web data firm Alarum Technologies was hit with a securities class action lawsuit in which the plaintiff alleged that the company failed to disclose that alleged flaws in the company’s proxy network allowed third-party bad actors to use Alarum’s customers’ home internet systems to disguise the bad actors’ location and to potentially engage in cyber-criminal activity.

These two cases are interesting not just because they involve cybersecurity-related D&O claims, but also because of the nature of the underlying allegations. In each case, the cybersecurity intrusions occurred not to the systems of the defendant companies; rather, the alleged cyber violation involved breaches or intrusions into the defendant companies’ customers’ systems, as a result of alleged weaknesses in the defendant companies’ security protocols or procedures. This distinction is important in considering the underwriting implications; underwriters may find it important to analyze what applicant companies are saying about the risks to customers and others from potential weaknesses in the applicant companies’ cybersecurity.

While cybersecurity issues have long been recognized as potential sources of D&O litigation risk, the nature of underlying cybersecurity risks arguably is changing, which in turn could alter the related D&O claims risk. The advent of artificial intelligence (AI) may massively change the cybersecurity equation. AI not only dramatically lowers the cost and skills required for cyber attackers to operate, but it also may act as a force multiplier, massively expanding the potential scope of a bad actor’s operations as autonomous AI-powered agents execute actions. AI also provides a host of new targets for the bad actors to try to attack (not only models, but servers, applications, and so on).

The potentially transformative AI effect on cybersecurity is even further complicated by the potential emergence of state actors deploying AI-powered cybersecurity attack tools for political or economic purposes. The July 2026 attack on over 30 municipal water systems in Minnesota, which investigators think was perpetrated by Iranian hackers, could be an example of this kind of nation-state activity, and could also suggest more disruptive and damaging attacks in the future. While nation state cyberactivity is not necessarily a new thing, nation states using AI-powered tools to search for vulnerabilities and to mount attacks could represent a categorically different level of risk.

The risk here is that the combination of AI-enabled cyber tools and the increase in state actor cyber activity could mean an increase in the frequency, complexity, and severity of cyber intrusions, creating both an increasingly challenging environment for company managers as they seek to navigate this environment, and a heightened level of concern for corporate boards as they seek to monitor their companies’ operations and related cybersecurity risks.

The bottom line is that while cybersecurity may in some ways represent a perennial D&O liability risk, the nature of both the cybersecurity element and the related D&O risk could be set for changes – potentially, significant changes – in the months and years ahead.

DExit Debate Raises Governance Questions

Although AI remains the dominant emerging risk theme, the continuing “DExit” movement may prove to be one of the most consequential corporate governance developments heading into 2027. Delaware’s efforts to stem the outflow of corporations through legislative reforms have not halted interest in alternative domiciles, particularly Nevada or Texas, where lawmakers have enacted a series of measures designed to attract public companies.

A growing concern is whether reincorporation transactions will become a new source of D&O exposure, particularly where shareholders perceive a shift away from Delaware as reducing investor protections or reducing accounability for directors, officers, and controlling shareholders. Proxy voting results suggest that institutional investors and proxy advisory firms are closely scrutinizing whether reincorporation transactions may alter shareholder rights and litigation remedies.

Recent reincorporation by major public companies, including ExxonMobil’s move from New Jersey to Texas and Dell’s move from Delaware to Texas, underscore that corporate migration is no longer limited to founder-controlled or closely held companies. As larger and more widely held issuers evaluate Texas as a corporate domicile, increased attention has focused on whether the state’s evolving corporate law framework may provide greater protections for directors and officers while limiting certain shareholder rights and litigation tools. These concerns have fueled opposition from proxy advisory firms and prompted investors to scrutinize the governance structures, charter provisions, and shareholder-rights protections accompanying reincorporation proposals.

One issue to watch is the extent to which reincorporation transactions themselves continue to be a source of D&O litigation. In August 2026, shareholders filed an amended derivative complaint challenging Dropbox’s reincorporation to Nevada, alleging that the move was designed to insulate management and the company’s controlling stockholder from accountability and to reduce stockholder protections. The case is significant because it suggests that plaintiffs may increasingly challenge reincorporation transactions not merely as governance decisions, but as conflicted transactions that allegedly benefit insiders at the expense of shareholders. The litigation also raises questions about what process, disclosure, and board-level safeguards may be necessary when a company seeks to leave Delaware.

As more companies evaluate whether to relocate their corporate domicile, a key question will be whether plaintiffs increasingly challenge those transactions through fiduciary duty, disclosure, derivative, or books-and-records litigation. Whether courts treat these moves as ordinary governance decisions entitled to business-judgment deference or as transactions conferring unique benefits on directors, officers, or controlling shareholders could significantly influence both the pace of future reincorporations and the litigation exposure associated with them.

For D&O underwriters, reincorporation proposals may warrant closer examination of a company’s ownership structure, governance profile, stockholder relations, and rationale for leaving Delaware. Companies with controlling shareholders, activist pressures, significant governance disputes, or proposals perceived as reducing shareholder rights may face heightened litigation risk surrounding the reincorporation process itself. As DExit transactions become more common, litigation challenging the decision to change domicile may emerge as a distinct category of corporate governance and D&O exposure.

New Developments on the Frontiers of Corporate Governance

In recent months, along with the changes in technology and geopolitics, there have also been developments at the frontiers of corporate governance, some of which potentially could have significant impacts on the liabilities of corporate directors and officers, and in some cases potentially could transform D&O litigation. One of the most significant recent changes in the corporate governance arena has been the previously discussed DExit movement. Other changes, which potentially could have an even more significant impact, are discussed below.

SpaceX IPO and Litigation Minimization Efforts

SpaceX went public in a high-profile IPO in June 2026. The transaction was noteworthy for many reasons, not least of which was its size – it was in fact the largest IPO ever. The transaction is also noteworthy because of what it may represent in terms of corporate governance reform.

In connection with its IPO, SpaceX adopted a host of measures clearly calculated to try to reduce the corporate and securities litigation exposures of the company and its executives. Although many of these measures are not entirely new, SpaceX initiatives take these steps further; taken collectively, the measures could transform the company’s corporate litigation exposure – and, if followed by other firms, the exposures of other publicly traded companies as well.

The SpaceX litigation management efforts start with its move to reincorporate from Delaware to Texas, in part due to an expectation that Texas corporate law provides broader protections for directors and officers. SpaceX also opted into a Texas-law provision allowing companies to require a shareholder to own at least 3% of the company’s outstanding stock before bringing a derivative action on behalf of the company. (Given SpaceX’s massive valuation, a 3% share represents tens of billions of dollars.)

SpaceX also adopted a number of exclusive forum provisions, designating specific venues, including the Texas Business Court and in certain circumstances arbitration forums, as the exclusive forum for many shareholder disputes.

The company went even further by implementing mandatory arbitration provisions, requiring many shareholder disputes to be resolved through binding arbitration rather than court litigation. These provisions are accompanied by jury trial and class action waivers, under which investors purchasing SpaceX shares are deemed to have waived the right to a jury trial and, for specified disputes, the ability to pursue class actions.

These provisions could extend to a broad range of shareholder and securities-related claims. Were the company to seek to extend these forum and other restrictive provisions to liability actions under the federal securities laws, they could face significant court challenges. However, the provisions’ inclusion in the company’s charter provisions highlights the extent to which the company is seeking to minimize and channel its litigation exposures.

Although not itself a litigation management measure, the company’s corporate dual-class and founder control mechanisms were structured to limit shareholders’ ability to challenge management through governance processes, reducing potential inroads for shareholder disputes and arguably even efforts to hold management accountable.

The broader significance of these efforts does not lie in any one provision, but rather in what the overall effort represents: a continuing of a growing trend of companies seeking to narrow shareholder litigation avenues before the companies enter the public markets, as discussed in a May 26, 2026, Wall Street Journal op-ed (here).

The bottom line is that SpaceX’s efforts, taken collectively, may, if successful, significantly shift the corporate governance line away from investor protection and management accountability, and toward a more comprehensive set of corporate protections.

The “Rampant” Increase in Government Corporate Ownership

It is not an entirely new development for the U.S. government to take an equity ownership position in private companies. Many will recall that during the global financial crisis several years ago, the government took equity positions in a number of companies, including, for example, General Motors and American International Group.

More recently, under the current Trump Administration, the federal government has adopted measures to take equity positions in a number of shareholder-owned companies. In a July 2026 study, the libertarian Cato Institute has said that the Trump administration’s moves to take equity ownership positions have become “routine.” The report states that the Trump administration has taken or has sought to take an equity ownership position in 30 companies.

The highest profile example from this expansive program is the 2025 transaction in which the U.S. government received approximately a 9.9% stake in Intel. The ownership interest was issued in connection with the release of roughly $8.9 billion in funding previously awarded to the company under federal semiconductor initiatives, including grants authorized by the CHIPS and Science Act of 2022 (CHIPS Act).

Regardless of what may be said about these kinds of arrangements from a policy perspective, this form of governmental corporate ownership raises a host of corporate governance concerns and questions. Indeed, the transaction in which the government received the Intel stake is itself already the subject of a shareholder derivative lawsuit, as discussed here.

The March 2026 Intel derivative lawsuit complaint alleges that the company’s CEO and board breached their fiduciary duties by approving an unlawful contract giving the U.S. government billions of dollars’ worth of Intel stock for no meaningful consideration in response to extortionary threats by the government. The complaint advances allegations of illegality, coercion, conflicted decision-making and inadequate board process, while also raising concerns about corporate waste and the potential entrenchment effects of a government-aligned corporate share voting arrangement.

The potential problems with these kinds of government ownership arrangements are legion. For starters, the government owner inevitably will sit in conflicted positions, as shareholder, regulator, customer, tax authority and policymaker. Corporate management may feel pressure regarding plant locations, employment and supply-chain choices, and even pricing or production decisions.

As the Intel derivative lawsuit demonstrates, private companies encountering government pressure to provide the federal government with an ownership stake may face complicated questions pitting shareholder primacy against political pragmatism. As the Intel case also shows, these complicated questions may lead to shareholder claims, suggesting that the Trump administration’s move toward state capitalism could represent a new area of potential D&O litigation exposure.

The Advent of the Artificial Intelligence Company?

One of the most interesting recent developments suggests the possibility of changes at the very frontiers of corporate governance. As we discussed in a recent post (here), Delaware is considering groundbreaking legislation that would create a new type of legal entity called an Artificial Intelligence Company (AIC). Under the proposal, an AI agent, rather than human managers or executives, would run the company’s operations. The AIC would have its own legal identity, allowing it to own assets, enter contracts, and sue or be sued, while providing limited liability protection to its owner or member. Initially, these entities would operate within a tightly controlled 30-month regulatory sandbox overseen by Delaware officials.

Supporters of the proposal argue that autonomous commerce is likely to emerge regardless of whether laws are prepared for it. By creating a regulated framework now, Delaware hopes to monitor, test, and shape the development of AI-run businesses rather than allowing them to develop in less regulated jurisdictions. The proposal includes safeguards such as capitalization requirements, mandatory disclosures, activity logging, defined authority limits for the AI agent, and mechanisms to suspend or revoke an AIC’s authorization if problems arise.

The concept raises significant legal and governance questions. Critics question the practical need for AI-run companies and wonder whether courts outside Delaware would recognize the new corporate form and its liability protections. There are also concerns about accountability if an autonomous company makes harmful decisions, violates laws, enters unauthorized contracts, or otherwise “goes rogue.” The proposal’s supporters contend that granting legal personhood to autonomous entities may actually provide a clearer framework for assigning responsibility when AI systems cause harm.

The possibility of the introduction of this new autonomous corporate form has interesting implications for the D&O insurance industry. Traditional D&O policies are designed to protect human directors and officers, but an AIC would have no human management. As a result, insurers may need to develop entirely new liability products tailored to autonomous companies. Such policies would likely focus on entity-level risks, the AI system’s controls and limitations, capitalization levels, oversight mechanisms, and potential liability arising from the AI’s actions.

While many questions remain unanswered, the proposal represents an important early effort to address the legal, governance, and insurance challenges posed by increasingly autonomous AI systems. Time will tell, of course, what is to become of the Delaware proposal.

What is Next for the D&O Insurance Marketplace?

As the preceding discussion shows, the D&O insurance industry is faced with an array of increasingly complex and challenging risks. But for now at least, the D&O insurance market remains in the soft market phase of the insurance cycle. However, there may be signs that the D&O insurance market may be beginning to stabilize.

Today’s soft market can be traced back to the last hard market phase, in the period 2019-2021. At that time, deteriorating losses in insurers’ D&O books led to sharp price increases. The price increases in turn attracted substantial numbers of new market entrants with fresh underwriting capacity. The result of the influx of new capacity was that starting in 2022, D&O insurance pricing began to fall, and coverage offerings broadened. The soft market phase of the cycle then commenced in earnest, as insurance buyers benefitted from several consecutive years of pricing decreases and increasingly favorable terms.

As always happens during the soft phase of the market cycle, insurers began to complain that pricing had fallen below risk-based levels. Notwithstanding these concerns, the market has remained competitive (although in every phase of the market cycle, hard-to-place accounts and distressed risks may still face a more challenging placement process).

There have been recent signs that pricing decreases may have levelled off, suggesting that at least some insurers in at least some instances are able to hold the line on pricing. Some observers have tried to suggest that this leveling off represents the early stages of an incipient market turn. Time will tell if this will be the case, although for now a true market turn seems unlikely.

The key circumstance that led to the soft market – an abundance of insurance capacity – remains in place and unchanged. As long as insuring capacity is abundant, competition will continue, which will in turn act as a check on any systemic shift to the next phase of the market cycle.

Another factor to consider is the issue of insurer profitability. One factor that generally leads to a hard market is industry-wide unprofitability. However, the D&O insurers generally continue to report profitable results, and many of the leading D&O insurers most recently reported results were solidly profitable. The current reported levels of profitability do not reflect the kinds of circumstances that generally precede an industry shift to a harder market.

In short, the most likely scenario in the near and middle term is a gradual stabilization of pricing, rather than a rapid shift toward a harder market. The marketplace in general, and in the near term at least, continues to be characterized by ample capacity, with competition acting as a check on comprehensive price increases.

In the near term, at least, most insurance buyers will continue to enjoy the wide availability of broad coverage at attractive pricing, though pricing is likelier to be closer to flat rather than reflecting the kinds of pricing reductions that were common in many of the more recent years.

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Every year after Labor Day, The D&O Diary takes a step back to survey the most important current trends and developments in the world of Directors’ and Officers’ liability and insurance. This year’s review is set out below. As the following discussion shows, this is a particularly interesting time in the world of D&O.

AI-Related Claims Are Already Mounting, But What May Be Ahead?

In a very short time, artificial intelligence (AI) has become one of the most important forces in the economy. As the Wall Street Journal put it in an August 3, 2026, article (here), the AI Boom has already “transformed” the American economy “beyond recognition.”

AI technology’s economic significance is reflected in extraordinary investor enthusiasm for AI-related companies. In addition, several big technology companies have committed to AI-related capital expenditures measured in the hundreds of billions of dollars. Given the sheer scale of the AI dynamic and given the seemingly boundless extent of investor enthusiasm for AI companies, it is hardly surprising that the rise of AI has also translated into D&O-related litigation, as companies eager to ride the AI wave fall short of aspirations or investor expectations.

Indeed, AI-related corporate and securities litigation has been one of the most important D&O claims trends so far in 2026. As of August 31, 2026, as many as 22 AI-related federal court securities class action lawsuits have been filed this year, compared to 16 in all of 2025. The AI-related D&O claims also include a number of shareholder derivative lawsuits, as well as AI-related enforcement actions, as noted below.

The most prevalent kinds of allegations in these AI-related lawsuits involve what has become known as “AI washing” – that is, allegations that the defendant companies overstated their AI-related capabilities, opportunities, or prospects. The August 26, 2026 settled enforcment action the SEC filed against Genesis AI and its CEO is a good illustration of this type of AI washing claim. In its complaint, the SEC alleged that the company had raised over $5 million from over 4,000 investors in a crowdfunding campaign by misrepresenting the company’s financial prospects and the viability of its purported marketplace for AI models. The company and the CEO agreed to pay fines, penalties, and interest. Readers will want to note that this AI-washing enforcement action involved a private company, underscoring the fact that AI-related D&O claim risk is not limited to just public companies.

But while AI-washing type allegations remain important in many AI-related lawsuits, AI-related litigation in recent months has included many other types of allegations. We detail below four other categories of allegations that have been raised in AI-related lawsuits: allegations of not involving overstatement of AI prospects but rather understatement of AI risk; allegations specifically concerning AI infrastructure build-out and strategies; allegations concerning misrepresentations about AI spending; and, finally, allegations in follow-on derivative lawsuits alleging that company executives’ decisions and actions led to underlying AI-related litigation. Many of the AI-related lawsuits involve more than one of the various types of allegations we identify.

Here are the four additional categories of allegations.

AI Risk Disclosure Allegations: One recent example of a case involving allegations that the defendant company understated its AI-related risk is the lawsuit filed in August 2026 against the software and services company Intuit. As discussed here, the plaintiffs alleged that while the company had emphasized its business prospects from its adoption of AI, the company failed to disclose the extent to which AI was simultaneously creating competitive pressures for key parts of its business. Similarly, in their June 2026 lawsuit filed against ZoomInfo Technologies (discussed here), the plaintiffs alleged that the company accurately described its AI initiatives but failed to disclose the risk that AI was threatening to disrupt its long-term business model.

AI Infrastructure-Related Allegations: In cases involving AI infrastructure companies, the defendant companies are alleged to have made misrepresentations regarding their infrastructure build-out and strategies. For example, in March 2026, a plaintiff shareholder filed a securities class action lawsuit against the engine and power systems company Power Solutions International, alleging that the company’s new strategy of providing power generation solutions for AI data centers had fallen short of the company’s representations.  Other lawsuits involving AI infrastructure companies’ misrepresentations include the January 2026 lawsuit against the start-up AI energy supply company Fermi (discussed here) and the lawsuit against the AI cloud computing data center company Coreweave (here).

AI Spending-Related Allegations: The huge AI-related capital expenditures companies are making have also generated their own category of AI-related claims, as shareholder plaintiffs allege that companies have not been sufficiently forthcoming about the extent of their AI-related spending. An example of this type of case is the February 2026 lawsuit filed against Oracle (discussed here). As discussed here, the plaintiffs in that case alleged that the company failed to disclose that: “(1) the Company’s AI infrastructure strategy would result in massive increases in CapEx without equivalent, near-term growth in revenue; (2) the Company’s substantially increased spending created serious risks involving Oracle’s debt and credit rating, free cash flow, and ability to fund its projects, among other concerns.”

There have been a number of other recent cases alleging that the company defendants have not sufficiently informed investors about the companies’ massive ramp-up in AI-related spending, including, for example, the June 2026 lawsuit filed against Microsoft (discussed here), the July 2026 lawsuit filed against Israeli web platform development company Wix (discussed here), and the August 2026 lawsuit filed against the cloud computing firm Rackspace Technology (discussed here). These “AI spend” lawsuits highlight growing investor scrutiny of whether management adequately disclosed the financial risks, costs, and tradeoffs associated with aggressive AI initiatives.

AI Follow-On Derivative Litigation: One further type of AI-related lawsuit that has been prevalent so far this year has been “follow-on” derivative lawsuits in which it is alleged that company management knowingly used copyrighted materials to develop their company’s AI products and models, which in turn caused the company to be sued by copyright holders for intellectual property violations. A number of large technology companies have been hit with these kinds of lawsuit in recent months, including, for example, Adobe (about which see here), Microsoft (here), Nvidia (here), and Apple (here).

These “follow-on” lawsuits also represent interesting examples of what has been called “silent AI” – that is, the way in which AI-related liabilities that would not typically be covered under a D&O insurance policy (in this case, intellectual property liability) can translate into a type of liability presumptively covered under the typical D&O insurance policy (in this case, breach of fiduciary duty allegations).

The emergence of this type of “silent AI” exposure is one reason that at least some insurers have been flirting with the idea of attempting to incorporate various types of AI-related exclusions on their management and professional liability policies. Given that the D&O insurance market remains in a soft market, these kinds of exclusions are unlikely to become widespread. However, if the market were to turn, it could well be that these kinds of AI-related exclusions could become more prevalent.

One overriding fear as AI infrastructure spending has mushroomed and as the financial markets have been roiled by a phenomenon that can only be described as an AI mania is the possibility that the AI frenzy is a huge bubble that could leave an enormous mess if the bubble were to burst. This possibility is certainly something that those of us who lived through the Dot Com era can easily picture.

Anyone looking for signs that things are getting frothy need look no further than the media reports that in connection with its planned IPO, Anthropic plans to identify potential revenue of $30 trillion. (By way of comparison, the current U.S. GDP is approximately $32 trillion).

In addition, a significant portion of AI activity is being driven by what is in effect “circular financing” – as, for example, where Nvidia agrees to finance a purchaser’s acquisition of Nvidia’s chips, and in return Nvidia agrees to acquire or backstop the purchaser’s computing power or other product or services. In this kind of structure, a mishap anywhere in the sequence could have cascading economic effects.

And while the overall amount of debt involved in the AI buildout is staggering, what is even more alarming is that, according to the Wall Street Journal (here), apparently much of the AI debt is being carried off the debtors’ balance sheets (to the tune of $3 trillion, just for the top nine tech companies).

Creative financing, obscure financial reporting, fantastic financial projections – these are the kinds of practices that in the past have preceded significant market corrections.

And if that were not enough, the reality is that the AI buildout is facing an increasing political backlash, as voters increasingly voice their concerns not just about data center construction but also about AI’s potential employment displacement effects. A hostile voter population could have a potentially devastating impact on some of the more ambitious AI plans, particularly if politicians eager to ingratiate themselves with voters turn on AI companies as convenient political targets.

For now, the picture is complex and uncertain. However, it seems probable that in the weeks, months, and years ahead, AI will be an increasingly charged source of D&O risk. There is a lot here for D&O underwriters to worry about.

Our views about the D&O underwriting implications of these AI-related developments are set out in Sarah Abrams’s June 2026 post, here.

What is Next with Geopolitics and D&O Risk?

In the current fraught global political and economic environment, businesses face a host of geopolitical risks. Among many other things, companies must deal with the current Trump administration’s shifting tariff policies; armed conflict in Ukraine and the Middle East; tensions in the South China Sea; increasing governmental use of sanctions, export restrictions, and technology controls; and supply chain concentration or disruptions.

The claims risk from geopolitical developments has been particularly apparent with respect to the Trump administration’s tariff policies. The tariff-related claims risk has involved both regulatory enforcement actions, on the one hand, and private civil litigation, on the other.

In a post earlier this year, Sarah Abrams detailed the claims risks associated with tariff enforcement, including in particular the possibility of False Claims Act claims brought against companies the administration alleges have sought to evade the tariffs. The administration has actively organized investigative personnel and processes to pursue tariff enforcement. Notably, these regulatory claims are not limited just to public companies; indeed, many of the enforcement actions have involved private companies.

In addition to the regulatory risks associated with tariff enforcement, companies also face the risk of private civil litigation associated with tariff-related disclosures. An example of this type of litigation is the securities class action lawsuit filed in June 2026 against the solar panel company First Solar, discussed here. The company’s products manufactured overseas are subject to tariffs imposed by the Trump administration. The lawsuit alleges that the company overstated its capacity to manage the impact of U.S. tariff policy and understated the extent to which its operational responses to U.S. tariff policy would negatively impact its financial results.

Other companies have faced securities litigation involving tariff-related disclosures. For example, and as discussed here, in the February 2026 securities class action lawsuit filed against the industrial clothing manufacturer Lakeland Industries, the plaintiff shareholder alleged, among other things, that the company had failed to disclose the extent to which the company’s financial performance was deteriorating as a result of “tariff-related headwinds.”

Similarly, and as discussed here, in March 2026, the social media company Pinterest was hit with a securities suit alleging that the company “overstated its ability to manage the impact of U.S. tariffs on the macroeconomic environment in which the Company operated, including the foreseeable impact on its advertising partners.”

Tariff-related issues remain critically important even though various courts have declared the Trump administration’s IEEPA tariffs (discussed here) and Section 122 tariffs (discussed here) to be unlawful. Notwithstanding these court setbacks, the Trump administration has continued to pursue its aggressive tariff policies, most recently seeking to impose tariffs in reliance on Section 301 of the Trade Act of 1974. These tariffs, too, have been the subject of a court challenge. In its recent imposition of tariffs on Canada, the Trump administration is relying on Section 338 of the Tariff Act of 1930 (the infamous Smoot-Hawley Act), which has never previously been used by a U.S. President to impose tariffs.

The current Trump administration clearly intends to continue to use tariff policies as part of its global trade strategy. The likelihood, therefore, is that companies will continue to face tariff-related operating and financial challenges, and it seems likely that the risk of tariff-related claims will continue in the months ahead.

The tariff-related enforcement actions and civil lawsuits are not the only claims that have risen out of geopolitical issues. In recent months, there have been a variety of corporate and securities lawsuits arising from other geopolitical developments affecting companies’ operations or financial performance.

For example, and as discussed here, in late March 2026, the data storage and computing systems company Super Micro Computer was hit with a securities suit alleging that the company failed to disclose that a significant portion of its China sales were made in violation of U.S. export control laws and regulations.

Similarly, as discussed here, in July 2026, the semiconductor component parts manufacturer Photronics was sued in a securities class action lawsuit after the company reported disappointing financial results, among other things, because the U.S.-Iran conflict had increased macroeconomic uncertainty and affected customer decision-making.

In addition, in August 2026, and as discussed here, the energy fuel cell company Bloom Energy was sued in a securities class action lawsuit after a short-seller report disclosed that the company was sourcing its supply of the rare earth metal scandium from or through China, contrary to the company’s prior representations that it was not dependent on Chinese scandium supplies.

Tensions and trade frictions with China represent something of a theme in a number of recent class action lawsuit filings. For example, and as discussed here, the Chinese technology company Alibaba was hit with a securities suit in August 2026, in which the plaintiff alleged, among other things, that the company had failed to disclose the possibility that its links to Chinese regulatory authorities could expose the company to designation as a “Chinese military company” under U.S. law.

Another geopolitical issue that can have an impact on D&O risk is the enforcement of anti-money laundering laws (AML). For example, as discussed here, in August 2026 a shareholder filed a securities suit against the British money transfer company Wise. The lawsuit was filed after the company failed to obtain a U.S. banking charter following revelations that Belgian authorities were investigating the company for possible AML violations.

In short, geopolitical risks present companies with a host of complicated operational and financial challenges. It is already clear that these challenges can translate into corporate and securities litigation. The challenges, and the related litigation threat, could potentially become of much greater significance in the months ahead.

Market Manipulation Schemes Proliferate

Market-manipulation litigation emerged as a notable securities class action lawsuit filing trend in 2026, involving at least 14 related class actions filed year-to-date (as of August 31, 2026). Although the allegations range from pump-and-dump schemes and stock promotion to spoofing and short-squeeze activity, the cases generally assert that the defendant’s manipulative trading practices artificially affected stock prices, resulting in significant investor losses.

A July 2026 Bloomberg Law report noted that in light of reduced SEC enforcement activity and SEC investor distributions, private securities litigation may be playing an increasingly important role in policing alleged market-manipulation schemes.

Many of the market manipulation securities lawsuits filed this year involve foreign, often China-based, low-float issuers. Recent examples include suits against Ostin Technology Group and Megan Holdings, where plaintiffs alleged that stock-promotion activity, limited public float, and concentrated ownership contributed to dramatic stock-price increases followed by steep declines. Similar allegations have been asserted against CLEU, PomDoctor, ChowChow Cloud, Concorde International, and iTonic Holdings. Several of these actions also underscore the growing role of social media in alleged pump-and-dump schemes, with plaintiffs asserting that coordinated online promotion through social-media platforms, investor forums, and digital marketing campaigns contributed to inflated stock prices and heightened trading activity.

The developing trend is not limited to social-media-driven promotion schemes. The February 2026 securities suit against Richtech Robotics alleges that the company overstated the significance of its relationship with Microsoft in order to enhance investor enthusiasm surrounding its AI initiatives, contributing to a substantial increase in its share price immediately before an at-the-market capital raise.

Notably, in March 2026, a federal court dismissed claims against Meta Platforms arising from alleged third-party stock-promotion activity, concluding that Meta was not liable for content posted by users on its platform, though plaintiffs were granted leave to amend. While the decision may limit efforts to hold social-media platforms directly responsible for alleged pump-and-dump activity, it has not diminished plaintiffs’ willingness to pursue claims against issuers, insiders, promoters, underwriters, and other participants allegedly involved in the underlying schemes.

Beyond stock-promotion and disclosure-based allegations, plaintiffs are increasingly targeting other forms of alleged market manipulation. The Genius Group/Citadel litigation centers on alleged spoofing activity by the defendant asset manager, while the Pentwater Capital case involves claims that the defendant’s short squeeze artificially inflated Avis Budget Group’s share price, allowing the defendant to profitably offload its Avis shares before an ensuing price decline. These cases reflect plaintiffs’ growing willingness to pursue market-manipulation claims under Sections 9(a) and 10(b) of the Exchange Act.

For D&O underwriters, characteristics that may make a security more susceptible to volatility or trading distortions, including limited float, concentrated ownership, heavy short interest, or unusual trading activity, may warrant increased scrutiny. Whether courts permit these market-manipulation cases to proceed will be an important issue to monitor, but if current filing levels persist, market-manipulation litigation could become one of the most significant emerging securities litigation filing trends.

Private Credit–Related Risk Leads to D&O Claims, D&O Risk

Private credit refers to lending conducted outside the traditional banking system. Over the last decade, private credit funds and other non-bank lenders have become an increasingly important source of financing for private-equity-backed and middle-market companies. As banks have retreated from portions of the lending market because of regulatory and capital constraints, private lenders have stepped in to fill the gap. What was once a niche asset class has grown into a market with more than $2 trillion in assets under management globally, making private credit one of the fastest-growing segments of the financial services industry.

The sector’s rapid expansion has attracted substantial investor capital and increased scrutiny of valuation practices, governance, fee structures, and potential conflicts of interest. As credit conditions have become more challenging, many of those issues are now beginning to surface in litigation.

Private credit’s rapid growth has brought increased attention to the features that make the asset class distinct, including illiquid valuations, complex fee structures, and liquidity management challenges. In March 2025, The D&O Diary asked a straightforward but increasingly important question: Is private credit a good D&O risk? As market stresses have emerged, many of the issues underlying that question are now being tested through borrower bankruptcies and a growing wave of litigation against private credit managers, advisers, and business development companies.

The private credit litigation wave continues to broaden. What began with securities class actions against BlackRock TCP Capital, Blue Owl, Hercules Capital, and FS KKR alleging inflated asset valuations, deteriorating loan performance, liquidity pressures, and inadequate disclosures has expanded into a new generation of claims targeting the business models and compensation structures of private credit advisers. At the same time, distress among private credit borrowers is creating a separate source of exposure, as demonstrated by the Tricolor Holdings bankruptcy and follow-on criminal and civil litigation. Together, these developments suggest that litigation risk is increasingly arising both at the lender level and within the private companies that rely on private credit financing.

A significant development in this trend is the emergence of Section 36(b) lawsuits under the Investment Company Act of 1940. In derivative actions against Blue Owl, Ares, and FS KKR, plaintiffs allege that advisers collected excessive fees because their compensation was tied to valuations of illiquid private credit investments and, in some cases, payment-in-kind (PIK) income that may never be realized in cash. The suits contend that advisers benefited financially from valuation practices that increased assets under management and incentive compensation.

Excessive fee lawsuits allege that private credit advisers faced an inherent conflict by both valuing illiquid portfolio assets and collecting fees tied to those valuations. The key issue to watch is whether courts allow these Section 36(b) derivative claims to proceed past the motion-to-dismiss stage. While any rulings would not be binding outside their jurisdictions, they could provide a roadmap for future claims against other private credit managers.

Another important trend to watch is whether deterioration in private credit portfolios translates into private company D&O exposure at the portfolio-company level. The Tricolor bankruptcy highlighted how allegations involving underwriting, oversight, disclosure, and governance failures can emerge when highly leveraged companies encounter financial distress. As more private credit-backed companies face restructurings, bankruptcies, and liquidity challenges, stakeholders may increasingly scrutinize board decision-making, sponsor oversight, lender influence, and related-party transactions, potentially creating new D&O risk for private company directors and officers.

More broadly, these cases signal that private credit litigation is evolving beyond traditional disclosure-based claims. As borrower defaults, restructurings, non-accrual loans, and redemption pressures continue to test private credit portfolios, investors are increasingly focusing on valuation methodologies, incentive compensation, governance practices, and potential conflicts of interest. Distress within the asset class also appears likely to remain a significant theme.

At the same time, private credit’s reach continues to expand into new pools of capital. The Wall Street Journal recently reported that private credit managers are increasingly targeting the U.K.’s pension and annuity markets, creating additional avenues through which risks associated with the asset class may be transmitted to institutional investors. The outcome of the fee-related derivative lawsuits, together with future litigation arising from distressed private credit borrowers and any increase in borrower bankruptcies, may help define the next phase of D&O and E&O exposure across the private credit ecosystem.

Cybersecurity, a Perennial D&O Risk, May be Poised for Transformative Change

Cybersecurity-related issues have long been recognized as an important potential source of D&O claims and liability. More recently, other D&O claims concerns have become more conspicuous, and cybersecurity-related issues have been less prominent. But while cybersecurity-related D&O risks may feature less prominently than in the past, cyber risk remains an important source of D&O liability exposure, and cybersecurity related D&O lawsuits continue to be filed. And even more significantly, the nature of the underlying cyber risk may itself be changing as well, as discussed below.

In an example of the continuing D&O litigation risk associated with cybersecurity, in May 2026, a plaintiff shareholder filed a securities class action lawsuit against cloud data storage company Snowflake, alleging, among many other things, that the company failed to disclose shortcomings in its customer data security arrangements that allegedly allowed key customers to experience a data breach. 

In a more recent case, in August 2026, as discussed here, Israeli-based web data firm Alarum Technologies was hit with a securities class action lawsuit in which the plaintiff alleged that the company failed to disclose that alleged flaws in the company’s proxy network allowed third-party bad actors to use Alarum’s customers’ home internet systems to disguise the bad actors’ location and to potentially engage in cyber-criminal activity.

These two cases are interesting not just because they involve cybersecurity-related D&O claims, but also because of the nature of the underlying allegations. In each case, the cybersecurity intrusions occurred not to the systems of the defendant companies; rather, the alleged cyber violation involved breaches or intrusions into the defendant companies’ customers’ systems, as a result of alleged weaknesses in the defendant companies’ security protocols or procedures. This distinction is important in considering the underwriting implications; underwriters may find it important to analyze what applicant companies are saying about the risks to customers and others from potential weaknesses in the applicant companies’ cybersecurity.

While cybersecurity issues have long been recognized as potential sources of D&O litigation risk, the nature of underlying cybersecurity risks arguably is changing, which in turn could alter the related D&O claims risk. The advent of artificial intelligence (AI) may massively change the cybersecurity equation. AI not only dramatically lowers the cost and skills required for cyber attackers to operate, but it also may act as a force multiplier, massively expanding the potential scope of a bad actor’s operations as autonomous AI-powered agents execute actions. AI also provides a host of new targets for the bad actors to try to attack (not only models, but servers, applications, and so on).

The potentially transformative AI effect on cybersecurity is even further complicated by the potential emergence of state actors deploying AI-powered cybersecurity attack tools for political or economic purposes. The July 2026 attack on over 30 municipal water systems in Minnesota, which investigators think was perpetrated by Iranian hackers, could be an example of this kind of nation-state activity, and could also suggest more disruptive and damaging attacks in the future. While nation state cyberactivity is not necessarily a new thing, nation states using AI-powered tools to search for vulnerabilities and to mount attacks could represent a categorically different level of risk.

The risk here is that the combination of AI-enabled cyber tools and the increase in state actor cyber activity could mean an increase in the frequency, complexity, and severity of cyber intrusions, creating both an increasingly challenging environment for company managers as they seek to navigate this environment, and a heightened level of concern for corporate boards as they seek to monitor their companies’ operations and related cybersecurity risks.

The bottom line is that while cybersecurity may in some ways represent a perennial D&O liability risk, the nature of both the cybersecurity element and the related D&O risk could be set for changes – potentially, significant changes – in the months and years ahead.

DExit Debate Raises Governance Questions

Although AI remains the dominant emerging risk theme, the continuing “DExit” movement may prove to be one of the most consequential corporate governance developments heading into 2027. Delaware’s efforts to stem the outflow of corporations through legislative reforms have not halted interest in alternative domiciles, particularly Nevada or Texas, where lawmakers have enacted a series of measures designed to attract public companies.

A growing concern is whether reincorporation transactions will become a new source of D&O exposure, particularly where shareholders perceive a shift away from Delaware as reducing investor protections or reducing accounability for directors, officers, and controlling shareholders. Proxy voting results suggest that institutional investors and proxy advisory firms are closely scrutinizing whether reincorporation transactions may alter shareholder rights and litigation remedies.

Recent reincorporation by major public companies, including ExxonMobil’s move from New Jersey to Texas and Dell’s move from Delaware to Texas, underscore that corporate migration is no longer limited to founder-controlled or closely held companies. As larger and more widely held issuers evaluate Texas as a corporate domicile, increased attention has focused on whether the state’s evolving corporate law framework may provide greater protections for directors and officers while limiting certain shareholder rights and litigation tools. These concerns have fueled opposition from proxy advisory firms and prompted investors to scrutinize the governance structures, charter provisions, and shareholder-rights protections accompanying reincorporation proposals.

One issue to watch is the extent to which reincorporation transactions themselves continue to be a source of D&O litigation. In August 2026, shareholders filed an amended derivative complaint challenging Dropbox’s reincorporation to Nevada, alleging that the move was designed to insulate management and the company’s controlling stockholder from accountability and to reduce stockholder protections. The case is significant because it suggests that plaintiffs may increasingly challenge reincorporation transactions not merely as governance decisions, but as conflicted transactions that allegedly benefit insiders at the expense of shareholders. The litigation also raises questions about what process, disclosure, and board-level safeguards may be necessary when a company seeks to leave Delaware.

As more companies evaluate whether to relocate their corporate domicile, a key question will be whether plaintiffs increasingly challenge those transactions through fiduciary duty, disclosure, derivative, or books-and-records litigation. Whether courts treat these moves as ordinary governance decisions entitled to business-judgment deference or as transactions conferring unique benefits on directors, officers, or controlling shareholders could significantly influence both the pace of future reincorporations and the litigation exposure associated with them.

For D&O underwriters, reincorporation proposals may warrant closer examination of a company’s ownership structure, governance profile, stockholder relations, and rationale for leaving Delaware. Companies with controlling shareholders, activist pressures, significant governance disputes, or proposals perceived as reducing shareholder rights may face heightened litigation risk surrounding the reincorporation process itself. As DExit transactions become more common, litigation challenging the decision to change domicile may emerge as a distinct category of corporate governance and D&O exposure.

New Developments on the Frontiers of Corporate Governance

In recent months, along with the changes in technology and geopolitics, there have also been developments at the frontiers of corporate governance, some of which potentially could have significant impacts on the liabilities of corporate directors and officers, and in some cases potentially could transform D&O litigation. One of the most significant recent changes in the corporate governance arena has been the previously discussed DExit movement. Other changes, which potentially could have an even more significant impact, are discussed below.

SpaceX IPO and Litigation Minimization Efforts

SpaceX went public in a high-profile IPO in June 2026. The transaction was noteworthy for many reasons, not least of which was its size – it was in fact the largest IPO ever. The transaction is also noteworthy because of what it may represent in terms of corporate governance reform.

In connection with its IPO, SpaceX adopted a host of measures clearly calculated to try to reduce the corporate and securities litigation exposures of the company and its executives. Although many of these measures are not entirely new, SpaceX initiatives take these steps further; taken collectively, the measures could transform the company’s corporate litigation exposure – and, if followed by other firms, the exposures of other publicly traded companies as well.

The SpaceX litigation management efforts start with its move to reincorporate from Delaware to Texas, in part due to an expectation that Texas corporate law provides broader protections for directors and officers. SpaceX also opted into a Texas-law provision allowing companies to require a shareholder to own at least 3% of the company’s outstanding stock before bringing a derivative action on behalf of the company. (Given SpaceX’s massive valuation, a 3% share represents tens of billions of dollars.)

SpaceX also adopted a number of exclusive forum provisions, designating specific venues, including the Texas Business Court and in certain circumstances arbitration forums, as the exclusive forum for many shareholder disputes.

The company went even further by implementing mandatory arbitration provisions, requiring many shareholder disputes to be resolved through binding arbitration rather than court litigation. These provisions are accompanied by jury trial and class action waivers, under which investors purchasing SpaceX shares are deemed to have waived the right to a jury trial and, for specified disputes, the ability to pursue class actions.

These provisions could extend to a broad range of shareholder and securities-related claims. Were the company to seek to extend these forum and other restrictive provisions to liability actions under the federal securities laws, they could face significant court challenges. However, the provisions’ inclusion in the company’s charter provisions highlights the extent to which the company is seeking to minimize and channel its litigation exposures.

Although not itself a litigation management measure, the company’s corporate dual-class and founder control mechanisms were structured to limit shareholders’ ability to challenge management through governance processes, reducing potential inroads for shareholder disputes and arguably even efforts to hold management accountable.

The broader significance of these efforts does not lie in any one provision, but rather in what the overall effort represents: a continuing of a growing trend of companies seeking to narrow shareholder litigation avenues before the companies enter the public markets, as discussed in a May 26, 2026, Wall Street Journal op-ed (here).

The bottom line is that SpaceX’s efforts, taken collectively, may, if successful, significantly shift the corporate governance line away from investor protection and management accountability, and toward a more comprehensive set of corporate protections.

The “Rampant” Increase in Government Corporate Ownership

It is not an entirely new development for the U.S. government to take an equity ownership position in private companies. Many will recall that during the global financial crisis several years ago, the government took equity positions in a number of companies, including, for example, General Motors and American International Group.

More recently, under the current Trump Administration, the federal government has adopted measures to take equity positions in a number of shareholder-owned companies. In a July 2026 study, the libertarian Cato Institute has said that the Trump administration’s moves to take equity ownership positions have become “routine.” The report states that the Trump administration has taken or has sought to take an equity ownership position in 30 companies.

The highest profile example from this expansive program is the 2025 transaction in which the U.S. government received approximately a 9.9% stake in Intel. The ownership interest was issued in connection with the release of roughly $8.9 billion in funding previously awarded to the company under federal semiconductor initiatives, including grants authorized by the CHIPS and Science Act of 2022 (CHIPS Act).

Regardless of what may be said about these kinds of arrangements from a policy perspective, this form of governmental corporate ownership raises a host of corporate governance concerns and questions. Indeed, the transaction in which the government received the Intel stake is itself already the subject of a shareholder derivative lawsuit, as discussed here.

The March 2026 Intel derivative lawsuit complaint alleges that the company’s CEO and board breached their fiduciary duties by approving an unlawful contract giving the U.S. government billions of dollars’ worth of Intel stock for no meaningful consideration in response to extortionary threats by the government. The complaint advances allegations of illegality, coercion, conflicted decision-making and inadequate board process, while also raising concerns about corporate waste and the potential entrenchment effects of a government-aligned corporate share voting arrangement.

The potential problems with these kinds of government ownership arrangements are legion. For starters, the government owner inevitably will sit in conflicted positions, as shareholder, regulator, customer, tax authority and policymaker. Corporate management may feel pressure regarding plant locations, employment and supply-chain choices, and even pricing or production decisions.

As the Intel derivative lawsuit demonstrates, private companies encountering government pressure to provide the federal government with an ownership stake may face complicated questions pitting shareholder primacy against political pragmatism. As the Intel case also shows, these complicated questions may lead to shareholder claims, suggesting that the Trump administration’s move toward state capitalism could represent a new area of potential D&O litigation exposure.

The Advent of the Artificial Intelligence Company?

One of the most interesting recent developments suggests the possibility of changes at the very frontiers of corporate governance. As we discussed in a recent post (here), Delaware is considering groundbreaking legislation that would create a new type of legal entity called an Artificial Intelligence Company (AIC). Under the proposal, an AI agent, rather than human managers or executives, would run the company’s operations. The AIC would have its own legal identity, allowing it to own assets, enter contracts, and sue or be sued, while providing limited liability protection to its owner or member. Initially, these entities would operate within a tightly controlled 30-month regulatory sandbox overseen by Delaware officials.

Supporters of the proposal argue that autonomous commerce is likely to emerge regardless of whether laws are prepared for it. By creating a regulated framework now, Delaware hopes to monitor, test, and shape the development of AI-run businesses rather than allowing them to develop in less regulated jurisdictions. The proposal includes safeguards such as capitalization requirements, mandatory disclosures, activity logging, defined authority limits for the AI agent, and mechanisms to suspend or revoke an AIC’s authorization if problems arise.

The concept raises significant legal and governance questions. Critics question the practical need for AI-run companies and wonder whether courts outside Delaware would recognize the new corporate form and its liability protections. There are also concerns about accountability if an autonomous company makes harmful decisions, violates laws, enters unauthorized contracts, or otherwise “goes rogue.” The proposal’s supporters contend that granting legal personhood to autonomous entities may actually provide a clearer framework for assigning responsibility when AI systems cause harm.

The possibility of the introduction of this new autonomous corporate form has interesting implications for the D&O insurance industry. Traditional D&O policies are designed to protect human directors and officers, but an AIC would have no human management. As a result, insurers may need to develop entirely new liability products tailored to autonomous companies. Such policies would likely focus on entity-level risks, the AI system’s controls and limitations, capitalization levels, oversight mechanisms, and potential liability arising from the AI’s actions.

While many questions remain unanswered, the proposal represents an important early effort to address the legal, governance, and insurance challenges posed by increasingly autonomous AI systems. Time will tell, of course, what is to become of the Delaware proposal.

What is Next for the D&O Insurance Marketplace?

As the preceding discussion shows, the D&O insurance industry is faced with an array of increasingly complex and challenging risks. But for now at least, the D&O insurance market remains in the soft market phase of the insurance cycle. However, there may be signs that the D&O insurance market may be beginning to stabilize.

Today’s soft market can be traced back to the last hard market phase, in the period 2019-2021. At that time, deteriorating losses in insurers’ D&O books led to sharp price increases. The price increases in turn attracted substantial numbers of new market entrants with fresh underwriting capacity. The result of the influx of new capacity was that starting in 2022, D&O insurance pricing began to fall, and coverage offerings broadened. The soft market phase of the cycle then commenced in earnest, as insurance buyers benefitted from several consecutive years of pricing decreases and increasingly favorable terms.

As always happens during the soft phase of the market cycle, insurers began to complain that pricing had fallen below risk-based levels. Notwithstanding these concerns, the market has remained competitive (although in every phase of the market cycle, hard-to-place accounts and distressed risks may still face a more challenging placement process).

There have been recent signs that pricing decreases may have levelled off, suggesting that at least some insurers in at least some instances are able to hold the line on pricing. Some observers have tried to suggest that this leveling off represents the early stages of an incipient market turn. Time will tell if this will be the case, although for now a true market turn seems unlikely.

The key circumstance that led to the soft market – an abundance of insurance capacity – remains in place and unchanged. As long as insuring capacity is abundant, competition will continue, which will in turn act as a check on any systemic shift to the next phase of the market cycle.

Another factor to consider is the issue of insurer profitability. One factor that generally leads to a hard market is industry-wide unprofitability. However, the D&O insurers generally continue to report profitable results, and many of the leading D&O insurers most recently reported results were solidly profitable. The current reported levels of profitability do not reflect the kinds of circumstances that generally precede an industry shift to a harder market.

In short, the most likely scenario in the near and middle term is a gradual stabilization of pricing, rather than a rapid shift toward a harder market. The marketplace in general, and in the near term at least, continues to be characterized by ample capacity, with competition acting as a check on comprehensive price increases.

In the near term, at least, most insurance buyers will continue to enjoy the wide availability of broad coverage at attractive pricing, though pricing is likelier to be closer to flat rather than reflecting the kinds of pricing reductions that were common in many of the more recent years.

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In the following guest post, Stephen Hourigan argues that a key driver of D&O claim severity is not necessarily board ignorance or misconduct, but the delay between when warning signs are known somewhere within the organization and when they are effectively communicated to the board. Steve suggests that there are questions underwriters can ask to determine the effectiveness of information communication to corporate boards. Steve is the Founder and CEO of Heardsafe, LLC. Our thanks to Steve for allowing us to publish his article as a guest post on our site.

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In most derivative and securities actions that follow a corporate crisis, the most damaging document in the record is one the company produced itself, years earlier, and never escalated.

It is rarely a smoking gun in the conventional sense. More often it is an inspection note, a complaint log, an internal audit finding, a supervisor’s email, a slide from a business review that framed a growing problem as contained. It was accurate when it was written. It was routed correctly under the company’s own procedures. It was closed out by someone with the authority to close it out.

And in the complaint, it appears under a heading that begins: “Defendants were on notice as early as...”

That document is the central severity driver in a large share of oversight-based claims, and it is generated by the insured, inside the ordinary operation of a well-designed governance program, long before anyone perceives a problem. This post is about why that happens, why it is usually not misconduct, and why it is a harder underwriting problem than it looks.

The interval, not the incident

The conventional framing of an oversight claim is that the board failed to know something. The more accurate framing, in most documented cases, is that the organization knew and the board learned later.

The distance between those two moments is the exposure.

Delaware’s trajectory since Caremark has made this increasingly consequential. Marchand focused attention on whether a board established any monitoring system for a mission-critical risk. In re McDonald’s extended oversight duties to officers. More recent Chancery decisions have pressed on the temporal dimension, treating unreasonable delay between a red flag and a board response as capable of supporting an inference of bad faith.

For D&O purposes, that shift matters in a specific way. Under a purely informational reading, the defense rests on what the board knew. Under a temporal reading, the defense has to account for how long the organization sat on what it collectively held. The second is considerably harder to defend, because the discovery record will show the interval with precision the defendants cannot contest — the documents are date-stamped.

Why the information stops moving

The intuitive explanation is concealment. Someone knew and someone buried it. That happens, and where it happens the coverage analysis is relatively clean.

It does not describe most of the record.

In Wells Fargo, the independent directors’ investigation found that written and oral presentations to the Risk Committee in May 2015 and to the full board that October did not convey the full scope and seriousness of the sales-practices problem. The board was not uninformed. Information reached it. What did not survive the journey was the scale of the pattern and its systemic character. The same investigation found that improper conduct was frequently treated as a collection of individual violations rather than evidence of a failure in the sales model itself.

Consider what that looks like from the outside during the period in question. The company had terminated roughly 5,300 employees for sales-integrity violations. Read one way, that is a compliance function working — thousands of investigations, findings, consequences applied. Read another way, it is thousands of people responding identically to the same incentive structure. The first reading generates case files. The second generates a governance question. The company generated the first.

In Silicon Valley Bank, the Federal Reserve’s post-failure review found 54 supervisory findings issued from 2019 onward, with 31 safety-and-soundness findings open at the end of 2022. The review expressly found no evidence that supervisors acted unethically, characterizing the failures as problems of judgment, execution, policy, and process. It also observed that supervisors continued accumulating evidence as the institution’s condition deteriorated.

That last point generalizes well beyond bank supervision. Gathering more evidence before escalating feels like discipline. Nobody is ever criticized in the moment for wanting to be sure. And it produces delay, which is indistinguishable from inaction once the outcome is known and a plaintiff is reconstructing the timeline.

Neither case required a bad actor. Both required only that consequential information travel through multiple human layers, each with legitimate reasons to summarize, contextualize, or moderate it. Urgency, recurrence, and operating context are the first properties lost in transit. Call it governance signal decay: the information did not disappear, it was transformed.

The behavioral literature is consistent with this. Research on the communication of unfavorable information has long recognized that people delay, soften, or avoid transmitting bad news — the MUM effect. Work in accounting has found evidence consistent with managers withholding unfavorable information relative to favorable information. Inside a hierarchy the tendency compounds at every layer: a frontline report becomes a localized problem, becomes an implementation challenge, becomes corrective actions underway, becomes a dashboard trending green.

No participant intends to mislead. Each is attempting to communicate responsibly, avoid overreaction, or demonstrate control. The signal still changes materially in transit.

The underwriting problem this creates

Here is the part I think should interest this readership most.

An underwriter assessing governance quality is working from artifacts produced by the same chain that produced the board’s picture. Application responses, program descriptions, hotline statistics, training completion rates, committee charters, management presentations at the renewal meeting — all of it originates inside the structure whose reliability is the thing being assessed.

The underwriter and the board therefore share an information problem, and it is the same one. Both are receiving an institutionally processed account, and neither holds an independent source against which to test it.

This is not a claim that companies misrepresent. It is a claim about verification. The failure mode that matters is not the account that is dishonest. It is the account that is sincere and wrong — and that is the case the investigations keep finding.

The problem is sharpest in the metrics that look most diagnostic. Reporting volume is the clearest example. A company reports declining concerns raised, and it is read as improving culture.

It may be. It may also mean employees have concluded that raising something is risky. Or that earlier reports produced no visible result. Or that contractors — often a substantial share of the people on site — have access to no channel at all. Or that issues get resolved informally by supervisors and never enter any record.

The research on organizational silence supports the pessimistic readings more than the optimistic one. Morrison and Milliken treated withholding as a collective phenomenon produced by structure and shared perception rather than individual deficits of courage. Detert and Edmondson found that employees suppress even constructive, pro-organizational suggestions because raising them would violate unwritten rules about hierarchy. Milliken, Morrison, and Hewlin found that the most commonly cited reason for withholding was not fear of formal retaliation but fear of being labeled negatively.

Fear and futility produce identical reporting data and require opposite remedies. A low number cannot distinguish between them. The absence of signal is ambiguous, and ambiguity is not reassurance — in underwriting any more than in oversight.

What would actually be diagnostic

If existence-based questions cannot separate the well-governed insured from the one that will produce a five-year-old inspection note in discovery, the question is what would.

I would suggest the diagnostic variables are architectural rather than programmatic:

• Latency. How long, historically, between an issue first appearing anywhere in the organization’s records and its appearance in board materials? This is measurable after the fact and almost never measured.
• Aggregation. Are recurring concerns assembled across facilities, business units, and functions — or resolved separately inside each? A company that cannot answer this will not detect a pattern until a regulator assembles it.
• Independence of route. Does any material information reach the board without passing through the management chain it would reflect on? For most insureds the honest answer is no.
• Evidence of consequence. Can the company show that people who raised concerns observed a response? This distinguishes a channel that exists from one that is used.
• Contractor and third-party coverage. Who is structurally outside every reporting mechanism the company describes?

None of these appear on a standard application. All of them are answerable, and the answers would tell an underwriter more about severity exposure than the presence or absence of a compliance program.

The market already prices this — after the loss

Worth noting that the instrument implied by all of this is not speculative.

When the Delaware Court of Chancery approved the settlement of the Boeing derivative litigation, the agreed relief included the creation of a channel by which employees could raise safety concerns directly to the board, outside the management chain. The same architecture recurs across deferred prosecution agreements, corporate integrity agreements, and consent orders.

In other words: courts and regulators repeatedly install an independent frontline-to-board route as part of the remedy for an oversight failure. It is, at present, almost exclusively a post-loss instrument — acquired at the price of the loss that produced it.

An instrument that consistently appears in the remedy is evidence about what the parties believed was missing beforehand. That seems like useful information for anyone pricing the risk of the same failure at a different insured.

The limits

A few caveats belong in an honest version of this argument.

More information reaching directors is not self-evidently better. Volume can overwhelm a board, blur oversight and management, and pull directors into operational case management where they add nothing. A route that delivers individual allegations to a board without separating them from verified patterns creates new problems, including new discoverable ones.

There is also a real tension worth naming for this audience: an architecture that improves the board’s visibility also creates a record of what the board could see. That cuts both ways in litigation, and any serious version of this has to be designed with that in mind rather than around it. My own view is that the interval is the more dangerous exposure — a board that learned late is harder to defend than a board that learned early and acted — but reasonable people in this market will weigh that differently, and I would be interested in the counterargument.

Finally, none of this is established. It is a hypothesis drawn from the documented record and it should be tested through implementation, independent research, and measurable outcomes, including outcomes that would falsify it.

Conclusion

Organizations rarely fail because they lack capable people. They fail because information capable of changing a decision does not reach the person making it while the decision is still open.

For directors, that is a governance problem. For the people who insure them, it is a severity problem with a measurable dimension that nobody currently measures — the interval between when the organization knew and when the board did.

That interval is already sitting in every insured’s document management system. It becomes visible when a plaintiff reconstructs it. There is no structural reason it could not be examined earlier, by someone with an economic interest in knowing.

Steve Hourigan is the author of The Trust Record: Why Governance Fails Before Anyone Lies (forthcoming).

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In the following guest post, Stephen Hourigan argues that a key driver of D&O claim severity is not necessarily board ignorance or misconduct, but the delay between when warning signs are known somewhere within the organization and when they are effectively communicated to the board. Steve suggests that there are questions underwriters can ask to determine the effectiveness of information communication to corporate boards. Steve is the Founder and CEO of Heardsafe, LLC. Our thanks to Steve for allowing us to publish his article as a guest post on our site.

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In most derivative and securities actions that follow a corporate crisis, the most damaging document in the record is one the company produced itself, years earlier, and never escalated.

It is rarely a smoking gun in the conventional sense. More often it is an inspection note, a complaint log, an internal audit finding, a supervisor’s email, a slide from a business review that framed a growing problem as contained. It was accurate when it was written. It was routed correctly under the company’s own procedures. It was closed out by someone with the authority to close it out.

And in the complaint, it appears under a heading that begins: “Defendants were on notice as early as…”

That document is the central severity driver in a large share of oversight-based claims, and it is generated by the insured, inside the ordinary operation of a well-designed governance program, long before anyone perceives a problem. This post is about why that happens, why it is usually not misconduct, and why it is a harder underwriting problem than it looks.

The interval, not the incident

The conventional framing of an oversight claim is that the board failed to know something. The more accurate framing, in most documented cases, is that the organization knew and the board learned later.

The distance between those two moments is the exposure.

Delaware’s trajectory since Caremark has made this increasingly consequential. Marchand focused attention on whether a board established any monitoring system for a mission-critical risk. In re McDonald’s extended oversight duties to officers. More recent Chancery decisions have pressed on the temporal dimension, treating unreasonable delay between a red flag and a board response as capable of supporting an inference of bad faith.

For D&O purposes, that shift matters in a specific way. Under a purely informational reading, the defense rests on what the board knew. Under a temporal reading, the defense has to account for how long the organization sat on what it collectively held. The second is considerably harder to defend, because the discovery record will show the interval with precision the defendants cannot contest — the documents are date-stamped.

Why the information stops moving

The intuitive explanation is concealment. Someone knew and someone buried it. That happens, and where it happens the coverage analysis is relatively clean.

It does not describe most of the record.

In Wells Fargo, the independent directors’ investigation found that written and oral presentations to the Risk Committee in May 2015 and to the full board that October did not convey the full scope and seriousness of the sales-practices problem. The board was not uninformed. Information reached it. What did not survive the journey was the scale of the pattern and its systemic character. The same investigation found that improper conduct was frequently treated as a collection of individual violations rather than evidence of a failure in the sales model itself.

Consider what that looks like from the outside during the period in question. The company had terminated roughly 5,300 employees for sales-integrity violations. Read one way, that is a compliance function working — thousands of investigations, findings, consequences applied. Read another way, it is thousands of people responding identically to the same incentive structure. The first reading generates case files. The second generates a governance question. The company generated the first.

In Silicon Valley Bank, the Federal Reserve’s post-failure review found 54 supervisory findings issued from 2019 onward, with 31 safety-and-soundness findings open at the end of 2022. The review expressly found no evidence that supervisors acted unethically, characterizing the failures as problems of judgment, execution, policy, and process. It also observed that supervisors continued accumulating evidence as the institution’s condition deteriorated.

That last point generalizes well beyond bank supervision. Gathering more evidence before escalating feels like discipline. Nobody is ever criticized in the moment for wanting to be sure. And it produces delay, which is indistinguishable from inaction once the outcome is known and a plaintiff is reconstructing the timeline.

Neither case required a bad actor. Both required only that consequential information travel through multiple human layers, each with legitimate reasons to summarize, contextualize, or moderate it. Urgency, recurrence, and operating context are the first properties lost in transit. Call it governance signal decay: the information did not disappear, it was transformed.

The behavioral literature is consistent with this. Research on the communication of unfavorable information has long recognized that people delay, soften, or avoid transmitting bad news — the MUM effect. Work in accounting has found evidence consistent with managers withholding unfavorable information relative to favorable information. Inside a hierarchy the tendency compounds at every layer: a frontline report becomes a localized problem, becomes an implementation challenge, becomes corrective actions underway, becomes a dashboard trending green.

No participant intends to mislead. Each is attempting to communicate responsibly, avoid overreaction, or demonstrate control. The signal still changes materially in transit.

The underwriting problem this creates

Here is the part I think should interest this readership most.

An underwriter assessing governance quality is working from artifacts produced by the same chain that produced the board’s picture. Application responses, program descriptions, hotline statistics, training completion rates, committee charters, management presentations at the renewal meeting — all of it originates inside the structure whose reliability is the thing being assessed.

The underwriter and the board therefore share an information problem, and it is the same one. Both are receiving an institutionally processed account, and neither holds an independent source against which to test it.

This is not a claim that companies misrepresent. It is a claim about verification. The failure mode that matters is not the account that is dishonest. It is the account that is sincere and wrong — and that is the case the investigations keep finding.

The problem is sharpest in the metrics that look most diagnostic. Reporting volume is the clearest example. A company reports declining concerns raised, and it is read as improving culture.

It may be. It may also mean employees have concluded that raising something is risky. Or that earlier reports produced no visible result. Or that contractors — often a substantial share of the people on site — have access to no channel at all. Or that issues get resolved informally by supervisors and never enter any record.

The research on organizational silence supports the pessimistic readings more than the optimistic one. Morrison and Milliken treated withholding as a collective phenomenon produced by structure and shared perception rather than individual deficits of courage. Detert and Edmondson found that employees suppress even constructive, pro-organizational suggestions because raising them would violate unwritten rules about hierarchy. Milliken, Morrison, and Hewlin found that the most commonly cited reason for withholding was not fear of formal retaliation but fear of being labeled negatively.

Fear and futility produce identical reporting data and require opposite remedies. A low number cannot distinguish between them. The absence of signal is ambiguous, and ambiguity is not reassurance — in underwriting any more than in oversight.

What would actually be diagnostic

If existence-based questions cannot separate the well-governed insured from the one that will produce a five-year-old inspection note in discovery, the question is what would.

I would suggest the diagnostic variables are architectural rather than programmatic:

• Latency. How long, historically, between an issue first appearing anywhere in the organization’s records and its appearance in board materials? This is measurable after the fact and almost never measured.
• Aggregation. Are recurring concerns assembled across facilities, business units, and functions — or resolved separately inside each? A company that cannot answer this will not detect a pattern until a regulator assembles it.
• Independence of route. Does any material information reach the board without passing through the management chain it would reflect on? For most insureds the honest answer is no.
• Evidence of consequence. Can the company show that people who raised concerns observed a response? This distinguishes a channel that exists from one that is used.
• Contractor and third-party coverage. Who is structurally outside every reporting mechanism the company describes?

None of these appear on a standard application. All of them are answerable, and the answers would tell an underwriter more about severity exposure than the presence or absence of a compliance program.

The market already prices this — after the loss

Worth noting that the instrument implied by all of this is not speculative.

When the Delaware Court of Chancery approved the settlement of the Boeing derivative litigation, the agreed relief included the creation of a channel by which employees could raise safety concerns directly to the board, outside the management chain. The same architecture recurs across deferred prosecution agreements, corporate integrity agreements, and consent orders.

In other words: courts and regulators repeatedly install an independent frontline-to-board route as part of the remedy for an oversight failure. It is, at present, almost exclusively a post-loss instrument — acquired at the price of the loss that produced it.

An instrument that consistently appears in the remedy is evidence about what the parties believed was missing beforehand. That seems like useful information for anyone pricing the risk of the same failure at a different insured.

The limits

A few caveats belong in an honest version of this argument.

More information reaching directors is not self-evidently better. Volume can overwhelm a board, blur oversight and management, and pull directors into operational case management where they add nothing. A route that delivers individual allegations to a board without separating them from verified patterns creates new problems, including new discoverable ones.

There is also a real tension worth naming for this audience: an architecture that improves the board’s visibility also creates a record of what the board could see. That cuts both ways in litigation, and any serious version of this has to be designed with that in mind rather than around it. My own view is that the interval is the more dangerous exposure — a board that learned late is harder to defend than a board that learned early and acted — but reasonable people in this market will weigh that differently, and I would be interested in the counterargument.

Finally, none of this is established. It is a hypothesis drawn from the documented record and it should be tested through implementation, independent research, and measurable outcomes, including outcomes that would falsify it.

Conclusion

Organizations rarely fail because they lack capable people. They fail because information capable of changing a decision does not reach the person making it while the decision is still open.

For directors, that is a governance problem. For the people who insure them, it is a severity problem with a measurable dimension that nobody currently measures — the interval between when the organization knew and when the board did.

That interval is already sitting in every insured’s document management system. It becomes visible when a plaintiff reconstructs it. There is no structural reason it could not be examined earlier, by someone with an economic interest in knowing.

Steve Hourigan is the author of The Trust Record: Why Governance Fails Before Anyone Lies (forthcoming).

In Episode 6 of the D&O Diary Podcast Series, we sit down with Dan Holloway, Head of Global Management Liability & Professional Indemnity at Allianz Commercial, to discuss the results of a recent global survey examining industry perspectives on AI and its impact on D&O liability and insurance.

The survey, conducted jointly by The D&O Diary and Allianz Commercial, gathered responses from 250 insurance professionals across the United States, Germany, the United Kingdom, Canada, and 21 additional countries. Participants included insurers, brokers, and representatives of insured companies, providing a broad cross-section of views on the opportunities and risks presented by AI.

During our conversation, we discuss the survey’s key findings and what they reveal about market sentiment toward AI, including the growing consensus that AI presents both significant opportunities and meaningful governance challenges. We also examine how insurers are evaluating AI governance as part of the underwriting process, whether existing D&O insurance policy forms are adequate to address AI-related risks, and what AI may mean for the future direction of the D&O insurance marketplace.

While AI technology may be new, many of the risks associated with AI are fundamentally governance risks, making effective oversight, accountability, and risk management more important than ever.

🎧 Listen now on:

Apple Podcasts: https://podcasts.apple.com/us/podcast/the-d-o-diary-podcast/id1896880954?i=1000787185496

Spotify: https://open.spotify.com/episode/55DTcVBLwoiaTmWfYjHgoB?si=_KwVCEhaSduswZVvPv1C8g
📺 Watch now on YouTube: https://youtu.be/OGbnKqwCYAY

If you enjoy the podcast, please consider following the series and sharing it with colleagues. We also welcome your suggestions for future topics.

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.

As we have noted on this site, the increasing number of AI-related corporate and securities lawsuit filings is one of the most important recent developments in the world of D&O liability and insurance. Among the AI lawsuits is a particular category of claims involving allegations against AI infrastructure companies. By way of example, last week, two AI infrastructure companies were hit with securities suits alleging that the companies overstated their business opportunities  arising from providing infrastructure to support the burgeoning AI  build-out. As discussed further below, these AI infrastructure lawsuits represent their own category of AI-related suit filings.

Innventure Inc.

Innventure is an industrial technology company. Through its Accelsius Holdings subsidiary, the company is developing and commercializing cooling solutions for data centers and other high-performance computing environments. It calls its cooling product “NeuCool.”

On November 17, 2025, Inventure announced that Accelsius had entered into an agreement with DarkNX, an alleged global data center developer, to deploy the NeuCool technology across a new data center campus in Ontario, Canada, which the company said signaled a “shift toward large-scale industry adoption of next-generation cooling.”

On May 28, 2026, short-seller Morpheus Research published a report alleging that the DarkNX’s venture to build a new AI data center in Ontario was a “fabrication.” Among other things, the report said that there is “zero evidence that this project exists or that DarkNX has the team or even funding to even contemplate such a project.” The report quoted an alleged former Innventure employee as saying that management was using “false information” and revenue projections that were “pure fiction” to solicit investments in Accelsius. The complaint alleges that the company’s share price declined on this news.

On August 13, 2026, as part of its second quarter 2026 financial reporting, the company announced that it was suspending its prior revenue and cash flow targets for 2026 for Accelsius and shifting its focus. The company also said that “the deployment site identified in the DarkNX purchase order is no longer available. Accelsius has removed the DarkNX project from its internal bookings.” According to the complaint, the company’s share price fell a further 55% on this news.

On August 28, 2026, a plaintiff shareholder filed a securities lawsuit in the Southern District of Texas against Innventure and certain of its directors and officers. A copy of the complaint can be found here. The complaint purports to be filed on behalf of investors who purchased the company’s securities between November 17, 2025, and August 13, 2026.

The complaint alleges that the defendants failed to disclose to investors that “Accelsius’ alleged transformative deal with DarkNX was unlikely to come to fruition as no evidence of DarkNX constructing or facilitating a large-scale AI data center existed” and that as a result, the company’s stated revenue and cash flow targets for Accelsius were overstated. The complaint alleges that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. The complaint seeks to recover damages on behalf of the class.

Hyliion Holdings

Hyliion develops modular power plant technology. On May 12, 2026, Hyliion announced that it had established a “strategic partnership” with VFG Holdings, an alleged AI data center developer, in which Hyliion would deploy power modules for data center applications. In announcing this partnership, Hyliion said, among other things, that VFG is “comprised of industry veterans from some of the largest data center companies” and is “planning multiple gigwatts of power production in the years ahead.”

The complaint alleges that Hyliion’s stock price rose on the news of the VFG partnership. The complaint alleges further that individual corporate officers, using Rule 10b5-1 trading plans, sold their company shares in transactions timed to follow the VFG announcement in order to “reap unjust financial rewards.”

On June 23, 2026, short-seller Pelican Way Research published a report that raised red flags regarding VFG’s operational capabilities, financial resources, and development experience. Specifically, the report raised the concern that VFG was a new entity with an incomplete website and apparently only four employees. The report also claimed that VFG lacked the resources to raise the hundreds of millions of dollars needed to pay Hyliion and questioned whether VFG engaged in any meaningful business activity. The report suggested that the announcement of the VFG partnership was conveniently timed, just as Hyliion’s cash resources were dwindling.

On August 26, 2026, two separate securities class action lawsuit complaints were filed in the Western District of Texas against Hyliion and certain of its directors and officers. The two complaints can be found here and here. Both complaints purport to represent a class of investors who purchased Hyliion securities between May 12, 2026, and June 23, 2026.

The complaints allege that during the class period, and “in order to cause a rapid price appreciation in Hyliion stock,” the defendants announced a deal “with an entity that was very recently formed and does not appear to have any actual business operations” and that the individual defendants timed the announcement in order to “insider trade.” The complaint alleges that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint seeks to recover damages on behalf of the class.

Discussion

Many readers undoubtedly will be familiar with “AI washing,” which involves allegations that a company overstated its artificial intelligence capabilities or opportunities. At first glance, it might appear that these new lawsuits should be categorized as AI washing cases. The companies certainly have been alleged to have overstated their respective opportunities.

However, these cases do not exactly fit the classic AI washing mold. These companies are not alleged to have overstated their artificial intelligence capabilities or opportunities. Indeed, the defendant companies are not alleged to have made any artificial intelligence-related misrepresentations, as such. Instead, the companies are alleged to have overstated the extent to which they were in a position to profit from the AI build-out, by offering AI infrastructure development, products, or services.

The fact is that the AI industry is in the midst of a massive buildout, in which large tech companies have announced AI development plans that run into the hundreds of billions of dollars. There is no doubt that there are going to be many infrastructure development and supply companies that will ride this build-out to capture massive revenues. Given the extent of the current boom, it is no surprise that infrastructure companies want to position themselves to take advantage of the boom – or, at a minimum, to create the appearance that they are positioned to take advantage of the boom.

Because the AI infrastructure lawsuits differ in key respects from the classic AI washing pattern of allegations, it is our view that the AI infrastructure lawsuits represent their own category of AI-related litigation, as differentiated from the AI washing suits.

Even before the filing of these latest lawsuits, there had already been a number of AI infrastructure lawsuits filed this year, including the lawsuits filed against Power Solutions International (discussed here), Fermi (discussed here), and Coreweave (discussed here). Given the sheer size of the AI buildout and the amount of economic activity involved, it seems likely that there will be further AI infrastructure lawsuits filed in the weeks and months ahead.

In any event, according to our tally, the filing of these new lawsuits brings the total number of AI-related lawsuit filings this year to 22 (counting the two similar complaints against Hyliion only once), by comparison to only 16 AI-related lawsuit filings in the full year 2025. Perhaps more importantly, it appears to us that the pace of AI-related filings is accelerating as the year progresses. There is no doubt that by year-end 2026, the number of AI-related lawsuit filings will be one of the most important D&O stories of the year.

One more way that these two new lawsuits are similar is that they involve allegations based almost exclusively on assertions that first appeared in short-seller reports. As long-time readers know, I have frequently cautioned against over-reliance on allegations drawn from short seller reports. Short sellers have an obvious financial incentive to try to make their target companies look questionable. And not only are the allegations in these new complaints based on short-seller claims, but the lawsuits have only just been filed and it remains to be seen how the lawsuits will fare.

I will say that the attempt in the Hyliion complaint to turn the individual defendants’ Rule 10b5-1 trades into evidence of deceptive intent is a stretch. The dollar figures involved are pretty minimal in my view – one defendant traded only $125,000 worth of his company shares, while the other defendants traded only $61,000 worth of company shares. These are hardly the magnitude of trades that might suggest an intent to defraud.

]]>

As we have noted on this site, the increasing number of AI-related corporate and securities lawsuit filings is one of the most important recent developments in the world of D&O liability and insurance. Among the AI lawsuits is a particular category of claims involving allegations against AI infrastructure companies. By way of example, last week, two AI infrastructure companies were hit with securities suits alleging that the companies overstated their business opportunities  arising from providing infrastructure to support the burgeoning AI  build-out. As discussed further below, these AI infrastructure lawsuits represent their own category of AI-related suit filings.

Innventure Inc.

Innventure is an industrial technology company. Through its Accelsius Holdings subsidiary, the company is developing and commercializing cooling solutions for data centers and other high-performance computing environments. It calls its cooling product “NeuCool.”

On November 17, 2025, Inventure announced that Accelsius had entered into an agreement with DarkNX, an alleged global data center developer, to deploy the NeuCool technology across a new data center campus in Ontario, Canada, which the company said signaled a “shift toward large-scale industry adoption of next-generation cooling.”

On May 28, 2026, short-seller Morpheus Research published a report alleging that the DarkNX’s venture to build a new AI data center in Ontario was a “fabrication.” Among other things, the report said that there is “zero evidence that this project exists or that DarkNX has the team or even funding to even contemplate such a project.” The report quoted an alleged former Innventure employee as saying that management was using “false information” and revenue projections that were “pure fiction” to solicit investments in Accelsius. The complaint alleges that the company’s share price declined on this news.

On August 13, 2026, as part of its second quarter 2026 financial reporting, the company announced that it was suspending its prior revenue and cash flow targets for 2026 for Accelsius and shifting its focus. The company also said that “the deployment site identified in the DarkNX purchase order is no longer available. Accelsius has removed the DarkNX project from its internal bookings.” According to the complaint, the company’s share price fell a further 55% on this news.

On August 28, 2026, a plaintiff shareholder filed a securities lawsuit in the Southern District of Texas against Innventure and certain of its directors and officers. A copy of the complaint can be found here. The complaint purports to be filed on behalf of investors who purchased the company’s securities between November 17, 2025, and August 13, 2026.

The complaint alleges that the defendants failed to disclose to investors that “Accelsius’ alleged transformative deal with DarkNX was unlikely to come to fruition as no evidence of DarkNX constructing or facilitating a large-scale AI data center existed” and that as a result, the company’s stated revenue and cash flow targets for Accelsius were overstated. The complaint alleges that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. The complaint seeks to recover damages on behalf of the class.

Hyliion Holdings

Hyliion develops modular power plant technology. On May 12, 2026, Hyliion announced that it had established a “strategic partnership” with VFG Holdings, an alleged AI data center developer, in which Hyliion would deploy power modules for data center applications. In announcing this partnership, Hyliion said, among other things, that VFG is “comprised of industry veterans from some of the largest data center companies” and is “planning multiple gigwatts of power production in the years ahead.”

The complaint alleges that Hyliion’s stock price rose on the news of the VFG partnership. The complaint alleges further that individual corporate officers, using Rule 10b5-1 trading plans, sold their company shares in transactions timed to follow the VFG announcement in order to “reap unjust financial rewards.”

On June 23, 2026, short-seller Pelican Way Research published a report that raised red flags regarding VFG’s operational capabilities, financial resources, and development experience. Specifically, the report raised the concern that VFG was a new entity with an incomplete website and apparently only four employees. The report also claimed that VFG lacked the resources to raise the hundreds of millions of dollars needed to pay Hyliion and questioned whether VFG engaged in any meaningful business activity. The report suggested that the announcement of the VFG partnership was conveniently timed, just as Hyliion’s cash resources were dwindling.

On August 26, 2026, two separate securities class action lawsuit complaints were filed in the Western District of Texas against Hyliion and certain of its directors and officers. The two complaints can be found here and here. Both complaints purport to represent a class of investors who purchased Hyliion securities between May 12, 2026, and June 23, 2026.

The complaints allege that during the class period, and “in order to cause a rapid price appreciation in Hyliion stock,” the defendants announced a deal “with an entity that was very recently formed and does not appear to have any actual business operations” and that the individual defendants timed the announcement in order to “insider trade.” The complaint alleges that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint seeks to recover damages on behalf of the class.

Discussion

Many readers undoubtedly will be familiar with “AI washing,” which involves allegations that a company overstated its artificial intelligence capabilities or opportunities. At first glance, it might appear that these new lawsuits should be categorized as AI washing cases. The companies certainly have been alleged to have overstated their respective opportunities.

However, these cases do not exactly fit the classic AI washing mold. These companies are not alleged to have overstated their artificial intelligence capabilities or opportunities. Indeed, the defendant companies are not alleged to have made any artificial intelligence-related misrepresentations, as such. Instead, the companies are alleged to have overstated the extent to which they were in a position to profit from the AI build-out, by offering AI infrastructure development, products, or services.

The fact is that the AI industry is in the midst of a massive buildout, in which large tech companies have announced AI development plans that run into the hundreds of billions of dollars. There is no doubt that there are going to be many infrastructure development and supply companies that will ride this build-out to capture massive revenues. Given the extent of the current boom, it is no surprise that infrastructure companies want to position themselves to take advantage of the boom – or, at a minimum, to create the appearance that they are positioned to take advantage of the boom.

Because the AI infrastructure lawsuits differ in key respects from the classic AI washing pattern of allegations, it is our view that the AI infrastructure lawsuits represent their own category of AI-related litigation, as differentiated from the AI washing suits.

Even before the filing of these latest lawsuits, there had already been a number of AI infrastructure lawsuits filed this year, including the lawsuits filed against Power Solutions International (discussed here), Fermi (discussed here), and Coreweave (discussed here). Given the sheer size of the AI buildout and the amount of economic activity involved, it seems likely that there will be further AI infrastructure lawsuits filed in the weeks and months ahead.

In any event, according to our tally, the filing of these new lawsuits brings the total number of AI-related lawsuit filings this year to 22 (counting the two similar complaints against Hyliion only once), by comparison to only 16 AI-related lawsuit filings in the full year 2025. Perhaps more importantly, it appears to us that the pace of AI-related filings is accelerating as the year progresses. There is no doubt that by year-end 2026, the number of AI-related lawsuit filings will be one of the most important D&O stories of the year.

One more way that these two new lawsuits are similar is that they involve allegations based almost exclusively on assertions that first appeared in short-seller reports. As long-time readers know, I have frequently cautioned against over-reliance on allegations drawn from short seller reports. Short sellers have an obvious financial incentive to try to make their target companies look questionable. And not only are the allegations in these new complaints based on short-seller claims, but the lawsuits have only just been filed and it remains to be seen how the lawsuits will fare.

I will say that the attempt in the Hyliion complaint to turn the individual defendants’ Rule 10b5-1 trades into evidence of deceptive intent is a stretch. The dollar figures involved are pretty minimal in my view – one defendant traded only $125,000 worth of his company shares, while the other defendants traded only $61,000 worth of company shares. These are hardly the magnitude of trades that might suggest an intent to defraud.

Over the past year, market-manipulation lawsuits have become a growing feature of the securities litigation landscape, with plaintiffs targeting alleged spoofing, short-selling, pump-and-dump schemes, and other trading-related misconduct. The latest such case, filed on July 31, 2026, in the Middle District of Florida, names hedge fund Pentwater Capital Management and its founder, Matthew Halbower, as defendants (Pentwater SCA). The complaint alleges that they manipulated the market for Avis Budget Group (Avis) shares by orchestrating a short squeeze and then selling into the resulting price spike.

Unlike pump-and-dump securities suits premised on allegedly false or misleading statements, the Pentwater SCA is based on the defendants’ trading activity itself. The lawsuit arguably represents an example of a growing trend in market-manipulation-related securities class action litigation while underscoring an increasingly important issue for D&O underwriters: securities litigation risk arising not from disclosure deficiencies, but from market-structure and trading-related factors capable of driving extreme stock-price volatility.

A copy of the Pentwater SCA can be found here.

The Pentwater SCA

Plaintiff Khashayar Hakimian filed the Pentwater SCA against Pentwater Capital Management LP and its founder, Chief Executive Officer and Chief Investment Officer Matthew Halbower, on behalf of investors who purchased Avis securities between February 20, 2025, and April 21, 2026. The complaint alleges violations of Sections 9(a) and 10(b) of the Securities Exchange Act of 1934.

According to the complaint, Pentwater accumulated a massive economic interest in Avis during the first several months of 2026. By March 2026, Pentwater allegedly held an economic interest representing approximately 51% of the company through a combination of common stock holdings and cash-settled swaps. The complaint alleges that Pentwater continued purchasing Avis shares even as the company’s stock was subject to significant short interest.

The plaintiffs contend that Pentwater’s aggressive purchases helped create a classic short squeeze, forcing short sellers to buy shares to cover their positions and driving the stock price even higher. According to the complaint, Avis shares rose from approximately $147 per share on April 1, 2026, to an intraday high of $765.94 on April 21, 2026, despite what the complaint characterizes as disappointing business fundamentals. The complaint further alleges that after the stock reached its peak, Pentwater sold approximately 4.3 million shares on April 22 and April 23, generating roughly $1.75 billion in proceeds. According to the complaint, those sales contributed to a sharp decline in Avis’s share price, which fell more than 74% and closed at approximately $182 per share on April 28, 2026.

Notably, the plaintiffs rely, in part, on statements made by Avis. During the company’s April 29, 2026, earnings call, Avis CEO Brian Choi allegedly stated that Pentwater’s growing ownership position, combined with unusually high short interest in Avis shares, contributed to the short squeeze and that Pentwater’s subsequent sale of 4.3 million shares helped drive the stock’s decline.

The Pentwater SCA follows a separate dispute between Avis and Pentwater. In June 2026, Avis disclosed that Pentwater had agreed to pay $650 million to settle claims seeking recovery of alleged short-swing profits under Section 16(b) of the Exchange Act. The plaintiffs allege that Pentwater’s conduct constituted a market-manipulation scheme and seek damages on behalf of investors who allegedly suffered losses when the stock price later collapsed.

Discussion

By our count, the Pentwater SCA increases the number of market-manipulation-related securities class actions filed in 2026 to 14 and adds a new variation to the trading practices being challenged by plaintiffs. The lawsuit also reflects the growing willingness of plaintiffs to invoke Sections 9(a) and 10(b) of the Exchange Act to challenge allegedly manipulative trading activity as the source of investor harm.

In that respect, the case bears comparison both to the spoofing-related litigation involving Genius Group securities and to recent pump-and-dump and stock-promotion cases involving Megan Holdings, Ostin Technology, ChowChow Cloud, and other low-float issuers. Although the alleged misconduct varies, these cases reflect a common trend of plaintiffs invoking market-manipulation theories to explain stock-price distortions and investor losses.

The Pentwater SCA is distinctive because it focuses on an alleged short squeeze, a theory that has appeared only infrequently in securities litigation despite controversies involving Tesla “funding secured” statements, Overstock-related litigation, and the GameStop trading controversy. As with other market-manipulation claims, plaintiffs here will likely confront difficult questions involving intent, causation, and the distinction between lawful market activity and actionable manipulation.

The timing of the Pentwater SCA is also noteworthy. The day before the complaint was filed, Bloomberg Law reported that declining SEC enforcement activity may be elevating the role of private securities litigation in both investor compensation and securities-law enforcement. The report noted declines in SEC enforcement actions and investor distributions while observing that private securities class action recoveries continue to exceed SEC recoveries. Whether or not private litigants are actually filling perceived enforcement gaps, the Pentwater lawsuit arguably illustrates the phenomenon, as private plaintiffs have stepped forward to pursue claims arising from alleged trading activity that traditionally might have attracted greater regulatory attention.

Whether or not one accepts the proposition that private litigants are increasingly filling perceived enforcement gaps, the Pentwater SCA arguably illustrates the phenomenon. At least based on the public record, private plaintiffs, perhaps more so than regulators, have stepped forward this year to pursue claims arising out of alleged trading activity. The case adds another chapter to the recent wave of market-manipulation litigation and reflects plaintiffs’ continuing willingness to pursue novel theories involving trading activity, market structure, and price formation.

Another interesting aspect of the case is damages. As noted above, Pentwater previously agreed to pay $650 million to settle Avis’ Section 16(b) short-swing profit claims. Because Section 16(b) requires disgorgement of profits to the issuer rather than shareholders, the settlement does not necessarily preclude separate securities fraud or market-manipulation claims. Nevertheless, it may raise significant questions about whether shareholders can demonstrate damages distinct from the profits already recovered on the company’s behalf and whether any recovery sought in this action would be duplicative. Those issues could become important battlegrounds as the case proceeds.

From a D&O underwriting perspective, the case may be significant beyond its ultimate merits. Recent lawsuits involving spoofing, short squeezes, pump-and-dump schemes, and low-float issuers suggest that securities litigation increasingly can arise from trading dynamics themselves rather than solely from alleged disclosure failures. As a result, factors such as concentrated ownership, significant short interest, limited public float, and unusual trading activity may become increasingly relevant underwriting considerations.

Whether the Pentwater plaintiffs can overcome the challenges that have historically confronted market-manipulation claims remains to be seen. In addition to proving manipulation, they may face significant questions concerning causation and damages given the earlier Section 16(b) settlement. Nevertheless, the lawsuit may provide an important indication of how courts will approach short-squeeze-related securities claims and how D&O insurers may evaluate market-structure risks going forward.

The securities class action lawsuit filed against Intuit, Inc. on August 17, 2026, represents another notable development in one of the most significant securities litigation trends of the year. According to our count, the Intuit case is the 20th AI-related securities class action filed in 2026, underscoring the continued evolution of AI-related litigation beyond traditional allegations of AI-washing and overstated artificial intelligence capabilities.

Similar to the securities class action filed against ZoomInfo Technologies on July 13, 2026, the complaint against Intuit alleges that, while the company promoted the benefits of artificial intelligence, it failed to disclose the extent to which AI was simultaneously creating competitive pressures for key parts of its business.

A copy of the complaint filed against Intuit can be found here.

The Intuit Securities Class Action

Intuit is a Software-as-a-Service (SaaS) financial technology company best known for its portfolio of consumer and business software products, including TurboTax, QuickBooks, Credit Karma, and Mailchimp.

On August 17, 2026, a plaintiff filed a securities class action lawsuit against Intuit, Inc. and certain of its current and former executives in the U.S. District Court for the Northern District of California. The complaint asserts claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, alleging that the defendants made materially false and misleading statements and omissions concerning the company’s business, operations, and prospects.

According to the complaint, Intuit repeatedly assured investors that Mailchimp was on track to return to double-digit growth and become a more valuable component of its small-business ecosystem. Plaintiffs allege these statements were misleading because the company failed to disclose the extent to which generative AI was creating competitive pressure on key businesses, particularly TurboTax, while Mailchimp’s operational and growth challenges were more severe than publicly acknowledged.

On May 20, 2026, Intuit reported disappointing third-quarter results, disclosed that tax-season performance had fallen short of expectations, and announced a restructuring plan involving approximately 3,000 layoffs and up to $340 million in related charges. The company also said it would scale back investment in Mailchimp after the business failed to achieve projected growth targets.

Plaintiffs allege that these disclosures caused Intuit’s stock price to decline by roughly 20%, with additional losses following a Goldman Sachs downgrade that cited rising competitive threats from AI-powered tax preparation services and concerns about Mailchimp’s long-term performance. The complaint seeks damages on behalf of investors who purchased Intuit securities during the proposed class period.

Discussion

The lawsuit against Intuit represents another milestone in the rapid evolution of AI-related securities litigation and may provide additional lessons for D&O underwriters. While the first wave of AI-related lawsuits largely targeted alleged misrepresentations about AI capabilities and opportunities, the Intuit complaint advances a different theory: that management failed to disclose how advances in generative AI were creating competitive headwinds for key business lines.

This closely mirrors the recent allegations made against ZoomInfo Technologies and may signal the continued evolution of AI-related securities litigation. In both cases, plaintiffs do not claim that the companies misrepresented their AI strategies. Instead, shareholder plaintiffs allege that management failed to disclose how AI was disrupting existing business models, customer behavior, and competitive dynamics while publicly emphasizing the benefits of their AI initiatives.

The Intuit action is also noteworthy because it targets a company that many investors likely viewed as a beneficiary of AI-driven innovation. According to the complaint, Intuit repeatedly promoted its AI-enabled tools as a competitive advantage while allegedly failing to disclose the extent to which advances in generative AI were simultaneously increasing competition and threatening portions of its established business. Whether courts ultimately embrace that theory remains to be seen, but the complaint represents a logical extension of the approach first seen in the ZoomInfo litigation. Rather than focusing solely on allegations that companies overstated AI capabilities or opportunities, plaintiffs are increasingly scrutinizing whether issuers adequately disclosed AI-related competitive pressures, business risks, and operational impacts.

From a D&O underwriting perspective, the Intuit lawsuit may illustrate an important emerging AI-related risk. Underwriters may have initially focused on corporate disclosures regarding AI capabilities and AI-related opportunities. The Intuit and ZoomInfo complaints suggest that D&O exposure can arise from a different source: not from overstating AI’s benefits, but from allegedly failing to disclose AI’s adverse effects on the company’s existing business. Companies that portray themselves as AI leaders or beneficiaries may face scrutiny if they fail to disclose the ways AI is disrupting customer behavior, pricing dynamics, competitive positioning, or demand for legacy products. As AI becomes increasingly embedded across industries, underwriters may need to evaluate not only a company’s AI strategy, but also management’s disclosure practices regarding AI-related threats to existing revenue streams and business models.

The case also highlights how AI-related securities litigation continues to expand beyond the initial flurry of “AI-washing” claims. Securities lawsuits filed in 2026 have involved AI infrastructure investments, AI spending and capital allocation decisions, operational execution risks, and broader disclosure issues relating to AI adoption.

For D&O underwriters, the key question may no longer be whether a company is using AI, but whether management is providing investors with a sufficiently complete picture of how AI is affecting the company’s business model, competitive position, and future prospects. As AI continues to reshape industries, allegations involving inadequate disclosure of AI-related risks and disruptions may become an increasingly prominent feature of the securities litigation landscape.

It is also worth noting that the AI-related securities class action lawsuit tally discussed above does not include the growing number of AI-related shareholder derivative lawsuits that have been filed against companies and their directors and officers. High-profile derivative actions involving companies such as Adobe, Microsoft, Nvidia, and others reflect a parallel and significant AI-related litigation trend. Although derivative suits differ procedurally from securities class actions and therefore are not included in our count, they nevertheless underscore the breadth of AI-related corporate litigation risk. Any assessment of the overall AI litigation phenomenon should take these derivative actions into account, as they represent an important and increasingly active avenue through which shareholders are seeking to hold corporate leaders accountable for AI-related governance, oversight, and disclosure issues.

In the following guest post, Nessim Mezrahi and Stephen Sigrist present their view that U.S. securities litigation risk is increasing significantly, driven by geopolitical instability and weakening investor confidence in the AI investment proposition, and that growing market capitalization losses, increased shareholder scrutiny, and the potential for an AI-related market correction are creating heightened securities litigation exposure. Nessim Mezrahi is co-founder and CEO, and Stephen Sigrist is a senior vice president, at SAR LLC. Our thanks to Nessim and Stephen for allowing us to publish their article on our site.

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Geopolitical instability continues to complicate disclosure adequacy for public companies and is facilitating the materialization of securities litigation risk due to heightened corporate governance demands by shareholders.[1]  Between June 30, 2025, and June 30, 2026, the aggregate market capitalization for issuers in the NYSE and NASDAQ expanded by ~28%, from ~$70.3 to ~$90 trillion.  Over the salient period, the two-year market capitalization losses on high-risk adverse corporate events increased by ~48%, from ~$11.8 to ~$17.4 trillion.[2]  Our analysis indicates that market capitalization losses have outpaced market cap growth in U.S. equities.  To “pick up slack for plummeting” enforcement by the U.S. Securities and Exchange Commission, plaintiff securities class action attorneys are touting their “superior effectiveness” in seeking monetary recompense due to allegedly defrauded shareholders for violations of the federal securities laws.[3]

Stock price impact data indicate that investors have begun to lose conviction on the story behind the artificial intelligence (AI) investment thesis, particularly for some large cap issuers in the information technology sector.  According to Jonathan Weil of the Wall Street Journal, “Wall Street’s forecasts for Big Tech require a major leap of faith: that the biggest AI hyperscalers can boost revenue much faster than the costs of running their businesses.  Some of the numbers look too good to be true.”[4]  According to Weil’s analysis, free cash flow for Alphabet, Meta, Microsoft, and Oracle is not expected to break even until at least 1Q 2027, when capex is estimated to exceed one trillion dollars.[4]  That’s just around the corner and situational awareness suggests the time horizon is likely to be premature.   

July’s trading data on the information technology sector indicate that investor sentiment is worsening based on the magnitude of recently deployed capex and may continue to do so if Big Tech does not reverse free cash flow’s falling knife by the start of second half of 2027.  According to Asa Fitch of The Wall Street Journal, “[i]nvestors have given Big Tech a long leash to invest in AI over the past few years.  That made sense given the capital intensity of what looked like a potentially world-changing boom.  But shareholder patience is being tested like never before, as tech giants take AI ambitions to the next level even as the cost of computer memory and other AI-infrastructure components rises.”[5]

Confidence decay in the AI play is driving the increase in the frequency and severity of high-risk adverse corporate events in the sector.  As of Dec. 31, 2025, information technology accounted for ~$4.1 trillion in market capitalization losses over the two-year period.[6]  As of June 30, 2026, the information technology sector accounted for ~$5.7 trillion. [7]  Based on the magnitude at stake, conditions are ripe for increased investigative scrutiny by institutional investors.

When comparing the growth in market capitalization relative to the growth in market capitalization losses, the numbers present an eerie prognostication of the sector.  Between December 31, 2025, and June 30, 2026, market cap losses grew ~1.6x relative to the ~23.9% growth in market cap.  It is not surprising that trading data in information technology through July 28, 2026, prompted a market correction in the NASDAQ-100.[8]

The impact is not limited to an increase in the deterioration of securities litigation risk for issuers in information technology.  The effect is bleeding over into credit risk based on the scale of capex investments directly related to the push for AI dependence.  According to Fitch Ratings, “[t]he global credit risk environment has evolved heading into 2H26 but continues to be driven by two main sources of short-term risk: rising vulnerability to an AI-related market correction and persistent geopolitical uncertainty in the Middle East.”[9]

Sustained geopolitical uncertainty coupled with multiple market corrections in tech prior to 2027 may be a precursor to greater deterioration in securities litigation risk for both U.S. and non-U.S. issuers across all sectors due to AI’s interconnectivity.  According to Fitch, “[t]he combination of revenue uncertainty and the extent to which capital markets and economies have become intertwined with the AI story have created a key potential vulnerability for credit in the event of a re-evaluation of long-run returns potential.  Very short-term spikes in market volatility for individual equities and tech-heavy stock indices have already been observed, but a larger, more protracted correction could have wider market, macro and credit effects depending on its scale, duration and contagion.”[9]

Based on our stock price impact data derived from single-firm event study analyses on 11,557 corporate disclosures from a population of 4,648 U.S. public companies, empirical results demonstrate an increasing deterioration in securities litigation risk, driven by both geopolitical instability and flailing investor confidence on the AI story.  There is little doubt that uninformed issuers will flop on their disclosures when internal truths on AI are revealed.

__________________________________________

[1] “How Securities Litigation Risk Materialized In the 1^st Quarter,” Nessim Mezrahi, Stephen Sigirst. Law360, April 13, 2026.

[2] Market capitalization losses account for the decline in market capitalization on single trading days that coincided with the release of company-specific information both directly and through SEC filings and that exhibited a statistically significant stock price decline at the 95% confidence level after controlling for the impact of the S&P 500 Total Return index and industry-specific factors for the corresponding population of active issuers in the NYSE and NASDAQ over a two-year period.

[3] “Private Investors Pick Up Slack for Plummeting SEC Enforcement,” Bloomberg Law, July 30, 2026.

[4] “Big Tech Stocks Are Pricing In a Miracle on Costs,” Jonathan Weil, The Wall Street Journal, July 28, 2026.

[5] “Meta’s Case for Its AI Spending Keeps Getting Weaker,” Asa Fitch, The Wall Street Journal, July 30, 2026.

[6] SAR U.S. Securities Litigation Risk Report 2H 2025.

[7] SAR U.S. Securities Litigation Risk Report 1H 2026.

[8] “Nasdaq-100 Enters Correction Territory,” WSJ Staff, July 29, 2026.

[9] Fitch Ratings Global Risk Outlook: 3Q26 ‘AI Market Correction Emerging as Major Credit Risk’.

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In the following guest post, Nessim Mezrahi and Stephen Sigrist present their view that U.S. securities litigation risk is increasing significantly, driven by geopolitical instability and weakening investor confidence in the AI investment proposition, and that growing market capitalization losses, increased shareholder scrutiny, and the potential for an AI-related market correction are creating heightened securities litigation exposure. Nessim Mezrahi is co-founder and CEO, and Stephen Sigrist is a senior vice president, at SAR LLC. Our thanks to Nessim and Stephen for allowing us to publish their article on our site.

***************************

Geopolitical instability continues to complicate disclosure adequacy for public companies and is facilitating the materialization of securities litigation risk due to heightened corporate governance demands by shareholders.[1]  Between June 30, 2025, and June 30, 2026, the aggregate market capitalization for issuers in the NYSE and NASDAQ expanded by ~28%, from ~$70.3 to ~$90 trillion.  Over the salient period, the two-year market capitalization losses on high-risk adverse corporate events increased by ~48%, from ~$11.8 to ~$17.4 trillion.[2]  Our analysis indicates that market capitalization losses have outpaced market cap growth in U.S. equities.  To “pick up slack for plummeting” enforcement by the U.S. Securities and Exchange Commission, plaintiff securities class action attorneys are touting their “superior effectiveness” in seeking monetary recompense due to allegedly defrauded shareholders for violations of the federal securities laws.[3]

Stock price impact data indicate that investors have begun to lose conviction on the story behind the artificial intelligence (AI) investment thesis, particularly for some large cap issuers in the information technology sector.  According to Jonathan Weil of the Wall Street Journal, “Wall Street’s forecasts for Big Tech require a major leap of faith: that the biggest AI hyperscalers can boost revenue much faster than the costs of running their businesses.  Some of the numbers look too good to be true.”[4]  According to Weil’s analysis, free cash flow for Alphabet, Meta, Microsoft, and Oracle is not expected to break even until at least 1Q 2027, when capex is estimated to exceed one trillion dollars.[4]  That’s just around the corner and situational awareness suggests the time horizon is likely to be premature.   

July’s trading data on the information technology sector indicate that investor sentiment is worsening based on the magnitude of recently deployed capex and may continue to do so if Big Tech does not reverse free cash flow’s falling knife by the start of second half of 2027.  According to Asa Fitch of The Wall Street Journal, “[i]nvestors have given Big Tech a long leash to invest in AI over the past few years.  That made sense given the capital intensity of what looked like a potentially world-changing boom.  But shareholder patience is being tested like never before, as tech giants take AI ambitions to the next level even as the cost of computer memory and other AI-infrastructure components rises.”[5]

Confidence decay in the AI play is driving the increase in the frequency and severity of high-risk adverse corporate events in the sector.  As of Dec. 31, 2025, information technology accounted for ~$4.1 trillion in market capitalization losses over the two-year period.[6]  As of June 30, 2026, the information technology sector accounted for ~$5.7 trillion. [7]  Based on the magnitude at stake, conditions are ripe for increased investigative scrutiny by institutional investors.

When comparing the growth in market capitalization relative to the growth in market capitalization losses, the numbers present an eerie prognostication of the sector.  Between December 31, 2025, and June 30, 2026, market cap losses grew ~1.6x relative to the ~23.9% growth in market cap.  It is not surprising that trading data in information technology through July 28, 2026, prompted a market correction in the NASDAQ-100.[8]

The impact is not limited to an increase in the deterioration of securities litigation risk for issuers in information technology.  The effect is bleeding over into credit risk based on the scale of capex investments directly related to the push for AI dependence.  According to Fitch Ratings, “[t]he global credit risk environment has evolved heading into 2H26 but continues to be driven by two main sources of short-term risk: rising vulnerability to an AI-related market correction and persistent geopolitical uncertainty in the Middle East.”[9]

Sustained geopolitical uncertainty coupled with multiple market corrections in tech prior to 2027 may be a precursor to greater deterioration in securities litigation risk for both U.S. and non-U.S. issuers across all sectors due to AI’s interconnectivity.  According to Fitch, “[t]he combination of revenue uncertainty and the extent to which capital markets and economies have become intertwined with the AI story have created a key potential vulnerability for credit in the event of a re-evaluation of long-run returns potential.  Very short-term spikes in market volatility for individual equities and tech-heavy stock indices have already been observed, but a larger, more protracted correction could have wider market, macro and credit effects depending on its scale, duration and contagion.”[9]

Based on our stock price impact data derived from single-firm event study analyses on 11,557 corporate disclosures from a population of 4,648 U.S. public companies, empirical results demonstrate an increasing deterioration in securities litigation risk, driven by both geopolitical instability and flailing investor confidence on the AI story.  There is little doubt that uninformed issuers will flop on their disclosures when internal truths on AI are revealed.

__________________________________________

[1] “How Securities Litigation Risk Materialized In the 1^st Quarter,” Nessim Mezrahi, Stephen Sigirst. Law360, April 13, 2026.

[2] Market capitalization losses account for the decline in market capitalization on single trading days that coincided with the release of company-specific information both directly and through SEC filings and that exhibited a statistically significant stock price decline at the 95% confidence level after controlling for the impact of the S&P 500 Total Return index and industry-specific factors for the corresponding population of active issuers in the NYSE and NASDAQ over a two-year period.

[3] “Private Investors Pick Up Slack for Plummeting SEC Enforcement,” Bloomberg Law, July 30, 2026.

[4] “Big Tech Stocks Are Pricing In a Miracle on Costs,” Jonathan Weil, The Wall Street Journal, July 28, 2026.

[5] “Meta’s Case for Its AI Spending Keeps Getting Weaker,” Asa Fitch, The Wall Street Journal, July 30, 2026.

[6] SAR U.S. Securities Litigation Risk Report 2H 2025.

[7] SAR U.S. Securities Litigation Risk Report 1H 2026.

[8] “Nasdaq-100 Enters Correction Territory,” WSJ Staff, July 29, 2026.

[9] Fitch Ratings Global Risk Outlook: 3Q26 ‘AI Market Correction Emerging as Major Credit Risk’.