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Dear Bill: Once again you have enlightened me as to why you do not view the lawsuits as a significant problem. But I would point out that these insurance policies do not as a matter of law insure against all possible jury verdicts. For example, a jury could potentially determine that there was willful and wanton conduct in manipulating the price of the stock by certain officers of IOM. Granted, that is a difficult set of facts to prove, but if it is proven it could generate an award of punitive damages, which as the name implies is meant to punish. Punitive damages as a matter of law (and good public policy) are not insurable. Clearly the lesser standard of negligent conduct by a company's officers is covered by insurance with the accompanying deductible. But again, the charge here is that the price of the stock was manipulated, and that is the sort of thing that could lead to a punitive damage award. (As an interesting sidelight, most punitive damage awards get settled by the litigants before appeal because the state usually gets a big cut of any punitive damage award, rather than the prevailing litigant.) In the case of CPQ, the only allegation that I know of is failure to warn, which is negligence, but I may be wrong. The problem with IOM is that there were previous allegations of stock manipulation in '96. Yes the people making the allegations were seasoned short sellers, but they tied the allegations into some sort of failed debt offering. And if a pattern can be established, then there are serious problems. So I really do not think that one can dismiss these problems out of hand. As a rule, Corporation Counsel does not discuss pending litigation, so it did not surprise me, but it is still something that one must keep in mind when buying a stock, and I feel that these actions go beyond the generic run of the mill "deep pockets" suits |
