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Directors and Officers: COVID-19 Liability

On March 4, 2020, the Securities and Exchange Commission (“SEC”) released an order cautioning companies to inform investors of potential COVID-19 related business risks. Unfortunately, the SEC’s cautionary statement did not appear to prevent corrupt practices within the corporate sector.  By April 2020, the first wave of allegations involving coronavirus-related securities fraud and misconduct by major corporate directors and officers (“D&O”) went public.

Initially, there was a fair amount of skepticism as to whether any of these allegations of executive misconduct would ever see the light of a courtroom. After all, a D&O claim had never been litigated in connection with any other virus outbreak in recent history. This skepticism was quickly put to rest with the swift filings of securities class-action lawsuits against two major corporations in the medical and tourism industries—Inovio Pharmaceuticals, Inc. and Norwegian Cruise Line. The allegations against the directors and officers range from wrongful public misstatements to blatantly misleading sales tactics. As the American economy experiences tremendous obstacles from the COVID-19 pandemic, directors and officers must adjust to fulfill their fiduciary duties to their corporations and do so without running afoul of securities laws.