Officer, Director Liability

1. Officer, Director Liability Civil and Criminal

2. RTA Officer Director Liability under MBCA • What is the MBCA? • Is it “liberal” or “conservative” or “what”? • Who are the “winners” and “losers” under SOME of its provisions? • Some important provisions: • -who determines value of consideration for corp. stock; • -std of care for D, O

3. MBCA provisions (cont’d.) • Important provisions (cont’d.) • Promoter liability for preincorp contracts • -who are legal mgrs of corp? May dir authority ever be dispensed w/ or limited? • -D, O fiduciary duties; D, O duty care • -merger decisions • -conflicts of interest • -D, O, ee reimbursement for jdgts, legal fees

4. General stds for Directors • Dischg duties as Dir (incl comm’ees) • -in good faith • -w/ care ORP person in like position under similar circumstances • -in manner S/HE reasonably believes in BIOC (best interests of corp)

5. Info Director entitled rely on • Info, opinions, rpts, statements (incl. Financial statements) et al financial data IF presented by: • -officer/-s or corp ees dir reas’bly believes reliable, competent re matter • -legal counsel, public acc’ts, et al persons re matters D reas’bly believes w/in person’s prof’l competence, expertise • ...

6. Director Stds (cont’d.) • D may rely on (cont’d) • -data, etc presented by committee of bd of which D NOT a member if D reas’bly believes committee merits confidence • D NOT act in Gfaith IF: has knowledge re matter making reliance otherwise permitted unwarranted • D NOT liable as D IF complies w/ sec MBCA

7. Officer, ee duties, rts • General rules of agency apply • examples: fiduciary duties; • duties of care • Statutory duties under federal securities laws: • -’33 Securities Act (applies only when issue “new” securities)

8. Officer, Dir Liability under ‘33 Sec. Act (cont’d.) • Section 11 claims: Let investors who are damaged by material error or omission in Registration Statement for new security sue RS signers, directors, major (>=5% Shers) IF: 1) acquired security • 2) material error or omission • 3) RS covers security • 4) P damaged

9. ‘33 Sec. Act (cont’d.) • Defendants: • the issuer (strictly liable) • all directors (including those agreeing to become directors) • CEO, financial, accounting officers of • issuer • experts as to “expertised” portion of RS; all underwriters

10. ‘33 Securities Act (cont’d.) • Extent of liability: Joint & several (one dir or O is liable for entire judgment U/L outside director (whose liability is proportionate U/L acted “knowingly”

11. ‘34 Sec. Exchange Act • Insider Short-swing profit prohibition: No trading in issuer’s stock on short-term (< 6 mos. Holding period) by issuer insiders (officer, dir, 10% sh) except <100 sh; also may not act thru “straw men” (16b) • stock proxies & proxy statements • sec 10b & rule 10b-5 Anti-fraud; applies to securities even if not required to be reg (very small cos, for example)

12. Securities Act 1934 (cont’d) • More 10b instances • What might be fraud by an officer, dir? (“any person”) • -insider trading (Tx Gulf Sulphur)(not require “sale/purchase” as does 16b) • -spreading false rumors • “Tippees” trading in issuer’s security (“Inherit the taint” rule of Dirks v. SEC)

13. Takeover bids (tender offers) • Public offers to buy target corp’s shares from corp SHs at set price • not need be all • must be same price to all offerees • SHs may w/draw tendered S for 1st 7days of T/offer; also may w/draw if not bot w/in 60 days of T/offer • If anyone owns >5% of security must reg w/ SEC & target w/in 10 days

14. Some environmental laws relevant to business • Clean Water Act • -What is prohibited: Dischg of pollutant from point source into US waters is illegal unless have NPDES permit • -How it works; discharges covered • -point sources • -discharges into POTWs • -non-point sources

15. Environmental law affecting business (cont’d) • Sanctions: • CRIM’L: negligent violations of NPDES permits or negligently introducing any pollutant or hazardous substance into sewer system if know or should know would cause pers’l injury or property damage, fines MIN. $2500/day to MAX of $25,000/day or ONE YR PRISON OR BOTH

16. Env’l law affecting biz (cont’d) • Sanctions (cont’d) • Crim’l.: KNOWING violations NPDES permit or pretreatment program: FINES MIN $5000/day to MAX $50,000/day or IMPRISONMENT for three yrs or BOTH • Knowing endangerment (viol. NPDES prmt. & death/serious bodiy harm: max $1 million fine and/or 15 YRS JAIL

17. Envir’l law affecting biz (cont’d) • Clean Water Act sanctions (cont’d) • CRIM’L: False statements in reports under the Act fine up to $10,000 and/or PRISON up to 2yrs • Civil: EPA has authority to set administrative civil sanctions for NPDES violations

18. Environ’l law affecting biz (cont’d) • CERCLA (Superfund) to clean up hazardous waste sites • Who are PRPs? • Owners of site • Transporters • Operators • Person who arranges for transportation on hazardous waste

19. Envir’l laws affecting biz (cont’d) • CERCLA (Super Fund) cont’d • -”facility” • -”release or threatened release” • -”P incurred ‘response costs’” • -”response costs conform to Nat’l Contingency Plan” • strict liability (even if negligent, liable)

20. Env’l laws affecting biz (cont’d) • How Super Fund works (EPA cleans up hazardous waste site & bills PRPs) • Joint & several aspect • Retroactive aspect • Case: Prisco v. A & D Carting