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Hot IPO environment heats up executive risks: Symposium speakers


NEW YORK — The stock market is in the hottest initial public offering environment since 2007, and with that comes the risk of directors and officers litigation, according to a speaker at the Professional Liability Underwriting Society's annual D&O symposium.

“The plaintiffs' bar is watching every IPO,” said Nathaniel D. McKitterick, a partner with law firm DLA Piper L.L.P. in East Palo Alto, Calif., who spoke during a PLUS session Wednesday in New York.

Mr. McKitterick said the primary risk factor in an IPO is a Section 11 claim under the Securities and Exchange Act of 1933. This statute imposes liability if there is material misrepresentation in a prospectus or registration statement about the company. Individuals can also be held liable if it can be established they did not exercise due diligence in signing the registration statement, he said.

“On a macro level, what has happened is the economy is starting to grow,” said Laurie E. Banez, senior vice president and chief underwriting officer for Jersey City, N.J.-based Argo Pro, a unit of Argo Group International Holdings Ltd. “People are starting to get comfortable that companies are experiencing growth” after the rather stagnant market of the past five years, she said.

Panel members discussed the 2012 Facebook Inc. IPO, which led to litigation. “In the end, Facebook achieved and exceeded revenue projections and their stock has rebounded, and it's actually doing very, very well,” said Ms. Banez.

Facebook revenues jumped 63% in 2013's fourth quarter, according to Reuters.


In underwriting D&O risks associated with IPOs, questions such as “Can you touch it? Can you feel it? Are the revenues predictable?” are asked today; during the dot-com boom of 2000, revenues “were difficult to get your arms around,” she said.

“I truly believe you can underwrite to this exposure,” Ms. Banez said.

The insurance industry has learned from its tech boom mistakes, said John Benedetto, president of Berkley Professional Liability L.L.C. in New York.

Going back to 1997-1999, there were three-year deals, discounting and cash flow underwriting, Mr. Benedetto said. “Today it doesn't exist. That has something to do with how people got real burned back then. I think they're still smarting from that. They don't want to go back there,” he said.

The session was moderated by Carolyn Polikoff, corporate and executive protection practice leader for Woodruff-Sawyer & Co. in San Francisco.