2007 D&O Symposium2007 D&O Symposium
GLOBAL COMPANIES, GLOBAL RISK: GLOBAL COMPANIES, GLOBAL RISK: EXPOSURES ARISING OUTSIDE THE USEXPOSURES ARISING OUTSIDE THE US
MODERATOR: NILAM SHARMA - ROBIN SIMON LLPMODERATOR: NILAM SHARMA - ROBIN SIMON LLPRODDY GRAHAM – THOMPSON HEATH & BOND LIMITEDRODDY GRAHAM – THOMPSON HEATH & BOND LIMITEDKATHLEEN DUBE – ACE INSURANCE EUROPEAN GROUPKATHLEEN DUBE – ACE INSURANCE EUROPEAN GROUP
GILLIAN EASTWOOD – FRESHFIELDS BRUCKHAUS DERINGERGILLIAN EASTWOOD – FRESHFIELDS BRUCKHAUS DERINGERDANIEL SOMMERS – COHEN MILSTEIN HAUSFELD & TOLLDANIEL SOMMERS – COHEN MILSTEIN HAUSFELD & TOLL
GLOBAL COMPANIES, GLOBAL COMPANIES, GLOBAL RISK: GLOBAL RISK:
EXPOSURES ARISING EXPOSURES ARISING OUTSIDE THE USOUTSIDE THE US
Roddy Graham
Thompson Heath & Bond Ltd.
London, UK
TOPICSTOPICS
• Exchange Competition: London vs. New York
• International D&O Broking Considerations
• International D&O Claims
AIM – KEY STATISTICSAIM – KEY STATISTICS
• Owned by London Stock Exchange
• AIM Companies: 1,590
• Overseas AIM Companies: 283
• IPOs on AIM in 2005: 335
259 UK
76 Overseas
• Capital raised since 1995: US$ 65bn
• Capital raised in 2005: US$ 16bn
AIM – COUNTRY AIM – COUNTRY DISTRIBUTIONDISTRIBUTION
• UK:1,296• Australia: 47• Canada: 44• Republic of Ireland: 39• USA: 36• BVI: 21• Bermuda: 20• Cayman: 20• Less than 20 listings: 19 other countries
AIM ADMISSION RULESAIM ADMISSION RULES
• No minimum size to be admitted
• No trading record required
• No min. amount of shares in public hands
• In most cases, no prior shareholder approval required for transactions
• Admission documents not pre-vetted by Exchange or UKLA but by nominated adviser
• Nominated adviser (“NOMAD”) required
BENEFITS OF AN AIM BENEFITS OF AN AIM LISTING?LISTING?
• Lower market entrance fees:
AIM: US$7,595; Nasdaq: US$100-150,000
• Lower annual fees:
AIM: US$7,595; Nasdaq: US$21,225-60,000
• Biannual and annual earnings reports only
• Alleviates costs associated with SOX/SEC
• As little as 3 months to gain admission; compared to 4-6 months on Nasdaq
IPOs STAMPEDE FROM IPOs STAMPEDE FROM SOX?SOX?
• 2001: 94 AIM vs. 63 Nasdaq
• 2002: 60 AIM vs. 51 Nasdaq
• 2003: 66 AIM vs. 56 Nasdaq
• 2004: 243 AIM vs. 170 Nasdaq
• 2005: 335 AIM vs. 118 Nasdaq
• 2006: 262 AIM vs. 97 Nasdaq
• Total: 1,060 AIM vs. 555 Nasdaq
Note: 2006 IPO data annualized
BID TO RECAPTURE BID TO RECAPTURE MARKET SHARE? MARKET SHARE?
• Nasdaq make 2 bids in 12 months for LSE
• International IPO’s 6 months to 10/31/06:
LSE/AIM: 40
Lux: 13
DB: 6
Nasdaq: 3
NYSE: 3
ENXT: 0
U.S. BROKER PRODUCED U.S. BROKER PRODUCED INTL. D&OINTL. D&O
• Australia• Belgium • Bermuda• Canada• Caribbean• Cayman Islands• China• France
• Hong Kong• Iceland• India• Ireland• Israel• Luxembourg• Russia• U.K.
BROKING BROKING CONSIDERATIONSCONSIDERATIONS
• Need for local licensed intermediary?
• What local taxes are payable?
• Who is responsible for paying and filing?
• Most London and Bermuda markets will consider any International D&O risk BUT is the carrier licensed to write local business? (e.g. South America, Japan, China, India etc.)
• Choice of law: local front vs. reinsurance
LOCAL PREMIUM TAXESLOCAL PREMIUM TAXES
Country Premium Tax
Other Tax Paid by? Remitted by?
U.K. 5% Nil Insured Insurer
Australia 3% Stamp Duty
Insurer Broker
Canada 4% Retail Sales Tax
Insurer Insurer
Ireland 2% Stamp Duty Insured Insurer
Bermuda 1% Stamp Duty
Nil Insurer Broker or Insured
Israel 2.5% Nil Insurer Insurer
UNUSUAL COVERAGE UNUSUAL COVERAGE ISSUESISSUES
• Israel: “costs in addition”• France: claims made vs. occurrence (3
or 5 years ERP for nil a.p.)• Germany: supervisory/management
board structure (no Insd. vs. Insd. exclusion)
• EU countries: Tacit renewal clauses Freedom of Services Directive
UNUSUAL COVERAGE UNUSUAL COVERAGE ISSUESISSUES
• UK: Easier to bring shareholder derivative
actions NatWest 3 extradition costs Legal Representation expenses
• India: Clause 49 Certification of financials 50% of boards to be independent directors
• Mongolia: WHO KNOWS?
EUROPEAN D&O EUROPEAN D&O SETTLEMENTSSETTLEMENTS
Company Country Amount Date
Deutsche Telekom Germany USD 120mm Nov. 2004
Otto GmbH Germany USD 104mm Feb. 2005
Royal Dutch Netherlands USD 90mm July 2005
Elan Corp. Ireland USD 75mm Feb. 2005
SkillSoft plc UK USD 32mm Mar. 2004
CBT Group UK USD 32mm Jan. 2004
ACLN Ltd. Belgium USD27.6mm Sept. 2004
Vivendi France USD 26mm Dec. 2003
Turkcell Turkey USD19.2mm Apr. 2004
Royal Ahold Netherlands USD 10mm Oct. 2004
Source: GenRe
EUROPEAN CLASS ACTIONSEUROPEAN CLASS ACTIONS
Company Country Amount Year
Royal Ahold Netherlands USD 1.1bn 2006
Lernaut & Hauspie Belgium USD 539mm 2003
Daimler Chrysler Germany USD 300mm 2003
Deutsche Telekom Germany USD 120mm 2005
Otto GmbH Germany USD 104mm 2005
Royal Dutch Shell Netherlands USD 90mm 2005
Elan Corp. Ireland USD 75mm 2004
Alcatel France USD 75mm 2001
Deutsche Bank Germany USD 58mm 2002
CBT Group plc UK USD 32mm 2004
R.O.W. D&O SETTLEMENTSR.O.W. D&O SETTLEMENTS
Country Allegation Amount Loss Date
Australia Securities Fraud
USD 112mm Aug. 2003
Bermuda Securities Fraud
USD 16.5mm Jul. 2004
Canada Securities Fraud
USD 125mm Sept. 2004
Colombia Securities Fraud
USD 19.2mm Feb. 2004
Switzerland Securities Fraud
USD 100mm Dec. 2001
Source: XL Capital
ALSO D&O LITIGATION ALSO D&O LITIGATION FROM HERE!FROM HERE!
• China
• Japan
• Finland
• Israel
• Italy
• Mexico
• Russia
• South Korea
• Spain
• Sweden
GLOBAL COMPANIES, GLOBAL GLOBAL COMPANIES, GLOBAL RISK: RISK:
EXPOSURES ARISING OUTSIDE EXPOSURES ARISING OUTSIDE THE USTHE US
Kathleen E. Dubé
ACE European Group Limited
Paris, France
COMMON COMMON MISCONCEPTIONSMISCONCEPTIONS
• D&O liability
• A D&O is a D&O
• One policy fits all
• The policy will govern the risk
• US experience as the guide
EUROPEEUROPE
Eastern Europe
UK
Continent
• UK
• Continent
• Eastern
CHALLENGESCHALLENGES
• The risk• Coverage
Market expectations Valid mechanisms
• Standard Exclusions• Claims made• Civil Law becomes Penal Law
• Maturity of the market Local expertise
• The Insurer• The broker• The risk manager• The judge• The media• The legal system
CHALLENGESCHALLENGES
• The Legal Context Civil Law VS Common Law Anglo-Saxon remedies for Civil Law
Contracts The courts Perception of the US
CLAIMS ACTIVITY CLAIMS ACTIVITY
• Jurisprudence
• What have we seen ?
• What are we expecting?
GLOBAL COMPANIES, GLOBAL COMPANIES, GLOBAL RISK:GLOBAL RISK:
EXPOSURES ARISING EXPOSURES ARISING OUTSIDE THE USOUTSIDE THE US
THE EUROPEAN LITIGATION ENVIRONMENT
Gillian Eastwood
Freshfields Bruckhaus Deringer
London, UK
FACTORS AFFECTING D&O FACTORS AFFECTING D&O RISK ASSESSMENT:RISK ASSESSMENT:
• Local laws re Directors’ and Officers’ liabilities and local corporate governance requirements
• Local laws affecting availability and enforceability of cover
• Local litigation environment: culture and procedure
• Regulatory requirements – by country and by industry sector
FACTORS VARY FOR EACH FACTORS VARY FOR EACH MEMBER STATE…MEMBER STATE…
France
Italy
RomaniaBul
Greece
Aus Hung
Czech Rep
PolandGermany
United Kingdom
Ireland LithLat.Est.
FinlandSweden
Neth
LuxBel
Slo
Den
Slov
Cyprus
Port. Spai
n
Malta
EUROPEAN LEGAL EUROPEAN LEGAL FRAMEWORKFRAMEWORK
• US has complex legal structure: federal laws and Courts, separate regimes in each of 50 states
• Europe – 27 member states in EU alone Each has own national law and court structure Some have their own state or regional variations Overarching EU law and court structure
• NB fundamental differences in legal systems. Common law system (used in England and US) is in the minority. Most EU countries have a civil law system.
COMMON LAW COMMON LAW VS CIVIL LAWVS CIVIL LAW
• Common Law Strong tradition of doctrine of precedent - Cases
are key source of law Evidence is a critical part of process (e.g. discovery
of documents, factual and expert witness evidence)
• Civil Law Statute is primary source of all law No doctrine of binding precedent (but in practice
judges usually consider decisions of superior courts)
Very limited (and, in some cases, no) focus on discovery or witness evidence
EUROPE vs US – THE EUROPE vs US – THE
PRINCIPAL DIFFERENCESPRINCIPAL DIFFERENCES
• Availability and nature of “Class actions”
• No contingency fees• Loser pays costs• Generally, no juries in civil cases• No punitive damages
IS THIS CHANGING?IS THIS CHANGING?
COLLECTIVE ACTIONSCOLLECTIVE ACTIONS
• European procedures are usually “collective” actions by named individual plaintiffs or consumer associations, rather than actions by generic class.
• Claimants must expressly opt-in, often within a relatively short time period. No US-style “opt-out” system – YET.
• Changes may be on the way: in Italy, France, Ireland
• Broader changes being considered at EU level
FORM OF MULTIPLE CLAIMANT FORM OF MULTIPLE CLAIMANT SYSTEM SYSTEM
ALREADY IN PLACEALREADY IN PLACE
• Sweden
• Spain
• Germany
• UK
• Netherlands
FURTHER FURTHER “AMERICANISATION”?“AMERICANISATION”?
• Fees and funding EU, Italy and Netherlands considering
introduction of contingency fees UK – increasing use of CFAs and non-
traditional funding arrangements.
• Loser pays Some minor modifications being considered
• Punitive damages Italy considering
GLOBAL COMPANIES, GLOBAL GLOBAL COMPANIES, GLOBAL RISK: RISK:
EXPOSURES ARISING OUTSIDE EXPOSURES ARISING OUTSIDE THE USTHE US
Daniel S. Sommers, Esq.Partner
Cohen, Milstein, Hausfeld & Toll, P.L.L.C.
U.S. PLAINTIFFS’ BAR IN U.S. PLAINTIFFS’ BAR IN EUROPEEUROPE
• Opening of Cohen, Milstein, Hausfeld & Toll, P.L.L.C. London Office
• Emerging European Class/Group Action Legislation
• Expansion of Potential Non-Securities Cases in Europe Antitrust/Competition Consumer Civil Rights/Human Rights
• Increasing Awareness of U.S. Remedies for Non-U.S. Investors
NON-U.S. INVESTORS AS LEAD NON-U.S. INVESTORS AS LEAD PLAINTIFFS IN U.S. SECURITIES PLAINTIFFS IN U.S. SECURITIES
CLASS ACTIONSCLASS ACTIONS
Issuer Investor (Country)Able Laboratories, Inc. Deka International (Ireland) Ltd.Adecco, S.A. Union Asset Management Holdings AG (Germany)Ariba, Inc. Aletti Gestielle SGR, S. P. A. (Italy)Biovail Corp. Ontario Teachers Pension Plan (Canada)Cable & Wireless plc Ontario Teachers Pension Plan (Canada)
Fortis Investment Management N.V./S.A. (Belgium)Metzler Investment GmbH (Germany)
Converium Holding AG Avalon Holdings, Inc. (Greece)Duke Energy Corporation SBA Artsenpensioenfondsen (Netherlands)
Handelsfinanz CCF Bank SA (Switzerland)SP Private Bank SA (Switzerland)Ozma Provident Fund, Ltd. (Israel)Sion Provident Fund, Ltd. (Israel)
Gilat Statellite Networks 3 Leumi Mutual Funds (Israel)Merck & Co. Inc. Union Investment GmbH (Germany)Mirant Corporation SBA Artsenpensioenfondsen (Netherlands)Nortel Networks Corp. Ontario Teachers Pension Plan (Canada)
Capital & Finance Asset Management (Belgium)Cattolica Partecipazioni (Italy)Hermes Investment Management Ltd. (UK)Societe Moderne des Terrassements Parisiens (France)Solotrat (France)
Primus Telecommunications Group, Inc.Retail Investor (UK)Team Communications Group, Inc. Fischer & Euler (Germany)The Goodyear Tire & Rubber CompanyCapital Invest, Kapitalanlagegesellschaft der Bank Austria Creditanstalt Grappe GmbH (Austria)
Catu Ltd. (Mexico)Gonnet Informatica (Switzerland)Prigest, S.A. (France)Tocqueville Finance, S.A. (France)
Williams Co./Williams Ontario Teachers Pension Plan (Canada)
Versata, Inc.
Vivendi Universal
Chicago Bridge & Iron Co NV
Eagle Building Tech.
ECI Telecom Ltd.
Parmalat Finanziaria SpA
INDIVIDUAL U.S. ACTIONS BY INDIVIDUAL U.S. ACTIONS BY NON-U.S. INVESTORSNON-U.S. INVESTORS
• Lernout & Hauspie EASDAQ Action Group of individuals from Belgium
• Royal Dutch Shell Opt-Out Deka Investment GmbH (Germany) Frankfurt-Trust Investment-Gesellschaft
mbH (Germany) Deka International SA Luxembourg 22 Dutch Institutional Investors
ISSUES IMPACTING D&O ISSUES IMPACTING D&O EXPOSUREEXPOSURE
• Willingness of U.S. Courts to Hear Claims of Purchasers on Non-U.S. Exchanges Subject Matter Jurisdiction Forum Non Conveniens
• Impact of Globalization of Exchanges
• Availability of Non-U.S. Courts Class/Group Action Device Contingent Fee Fee Shifting
Examples of U.S. versus Non-Examples of U.S. versus Non-U.S. Shareholder DistributionU.S. Shareholder Distribution
Europe 74%
North America
24%
Asia 2%U.S.19%
Europe81%
Royal Dutch/ShellDeutsche Telekom
GLOBAL COMPANIES, GLOBAL GLOBAL COMPANIES, GLOBAL RISK: RISK:
EXPOSURES ARISING OUTSIDE EXPOSURES ARISING OUTSIDE THE USTHE US
REGULATORY £XPO$UR€A GLOBAL PERSPECTIVE
Nilam Sharma
Robin Simon LLP
London, UK
MISSION STATEMENTSMISSION STATEMENTS
FSA
“The FSA task is to achieve a marketplace that is run in an efficient, orderly and clean manner whilst
ensuring consumers receive a fair deal by being properly informed and appropriately protected”.
SEC
“The mission of the U.S. Securities and Exchange Commission is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital
formation”.
FSA INVESTIGATIONS
Year of Annual Report Number of New Investigations
1997/1998 28
1998/1999 123
1999/2000 159
2000/2001 376
2001/2002 519
2002/2003 138
2003/2004 175
2004/2005 183
2005/2006 269
UK REGULATORY UK REGULATORY LANDSCAPELANDSCAPE
• Investigations – Quality Not Quantity
• Average fine now GBP500,000
• Responsibility BOTH Company and Individuals
• Increased focus on Criminal Prosecutions
• OFT, SFO, FRC, Competition Commission, HSE, Takeover Panel and Treasury Solicitor.
• Move to a US style suits and model (Witness Accomplice/Front End Plea Bargaining)
ALL AROUND THE WORLD…
REGULATORS WORLDWIDEREGULATORS WORLDWIDE
Country Regulator Notable Cases
Germany BaFin • Takeover of Schering by Bayer• Daimler Chrysler• Anti-trust cases (Eon, RWE, EnBw & Vattenfall)• Bribery allegations against Philips
France AMF • Airbus and EADS insider dealing allegations• Deutsche Bank and Vivendi
Holland AFM • Ahold
Italy CONSOB • Parmalat
Sweden SFSA • Scania• Volvo
Switzerland SBC • SwissAir• Siemans
South Korea FSS • Slush funds involving Hyundai, Samsung, LG Group • Fraud allegations/anti trust probe into Hyundai
Australia ASC • National Australia Bank• Multiplex
THE MIGHT OF THE THE MIGHT OF THE REGULATORREGULATOR
Disciplinary Powers Most regulatory authorities have power to discipline those under its jurisdiction eg. withdrawal of authorisation/licence.
Civil proceedings/fines/
penalties/ injunctions
FSA (UK), OFT (UK), BaFin, AFM (Holland), AMF (France), Consob (Italy)
Criminal Proceedings (fines and/or imprisonment)
FSA (UK), SFO (UK)
Proceedings by Public Prosecutor
AFM (Holland), Consob (Italy)
Early Settlement/Mediation FSA (UK), SEC (US)
REGULATORS UNITEDREGULATORS UNITED
• Section 169 FSMA Information Gathering and Investigative Powers.
• Section 354 FSMA General Duty to Co-operate.• Memoranda of Understanding (“MoUs”) FSA
and SEC.• IOSCO and CESR bilateral and multilateral
information sharing arrangements.• EU Directives (MAD AND MIFID)• Shell, Citigroup, Deutsche Bank, Ahold and
Siemens.
REGULATORS’ CHATROOMREGULATORS’ CHATROOM
• General prohibition on disclosure of confidential information in UK, but gateways.
• Information sharing between domestic regulators eg. Generic Pharmaceuticals - SFO Civil Action by NHS
• Information sharing between regulators worldwide eg. NatWest 3 - FSA SEC
• Regulatory investigation leads to litigation eg. Replica Football/Soccer Kits – OFT Class Action
END GAME…END GAME…
• Increased regulatory activity worldwide.
• Exhaustion of policy limits on defence costs.
• Jurisdiction issues –worldwide policy v. locally admitted policies.
• Sub-limits/Extensions/Endorsements.
• Entity coverage.
…When is a regulatory action over?
ON THE RADAR…ON THE RADAR…
• Insider Dealing• Private Equity• Market abuse by hedge funds and
investment banks• Cartels/Competition/Anti Trust Activities• Class Actions/Active Shareholders
GLOBAL COMPANIES, GLOBAL COMPANIES, GLOBAL RISK: GLOBAL RISK:
EXPOSURES ARISING EXPOSURES ARISING OUTSIDE THE USOUTSIDE THE US
QUESTIONSQUESTIONS