Follow-On Shareholder Suits After CFPB Settlements - From the Experts

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Originally published in Corporate Counsel on March 4, 2013.

Federal regulators landed the first blow: Several major credit card companies paid more than half a billion dollars in customer restitution and fines as part of settlements reached with the Consumer Financial Protection Bureau in the summer and fall of 2012. But while these companies were still reeling from the first punch, shareholders took the next swing, filing class action shareholder derivative suits against the directors and senior officers of these financial services companies, alleging the CFPB’s findings and the settlements demonstrated mismanagement, breach of fiduciary duty, and unjust enrichment at the companies’ expense.

The three shareholder derivative suits target senior officers and directors, whose actions are presumably covered by D&O policies, and suggest a pattern: Plaintiffs invoke the companies’ compliance policies and related representations, cite at length to governmental investigations or settlements, and then allege that the divergence between the companies’ representations and the investigations or settlements evidence a breach of fiduciary duty, mismanagement, or unjust enrichment. The companies’ refusals to admit wrongdoing, including in the settlement, is not acknowledged.

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