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Court largely refuses to dismiss D&O litigation against SolarWinds


A Texas federal court largely refused to dismiss directors and officers securities litigation filed against SolarWinds Corp. in connection with a December 2020 cybersecurity breach.

The lead plaintiff in the litigation is the New York City District Council of Carpenters Pension Fund, which filed suit against SolarWinds, its officers and two securities firms, according to last week’s ruling by the U.S. District Court in Austin in In re: SolarWinds Corp. Securities Litigation. The ruling was first reported by The D&O Diary.

The breach was described by the U.S. General Accountability Office as “one of the most widespread and sophisticated hacking campaigns ever conducted against the federal government and private sector.”

The complaint charged that SolarWinds falsely told investors it had a robust cybersecurity system. It also said that one week before the breach was revealed and SolarWinds’ share price dropped, then-CEO Kevin B. Thompson sold more than $20 million in company stock.

The court refused to dismiss a charge that Tim Brown, who was vice president, security architecture, had “acted with, at least, severe recklessness when he touted the security measures implemented at SolarWinds,” the ruling said, in also refusing to dismiss charges that Mr. Brown and SolarWinds had made material misrepresentations or omissions.

The court also ruled that the plaintiffs had sufficiently alleged that “it is more probable than not” that corrective disclosures after the incident “caused the virtually simultaneous drops” in the prices of Solar Winds securities.

In addition, the court refused to dismiss certain allegations made against Mr. Thompson specifically. However, it held that the plaintiffs “failed to effectively plead scienter” against Mr. Thompson, which refers to knowledge or intent of wrongdoing, and granted his motion to dismiss that charge, although with leave to amend.  

Attorneys in the case had no comment or did not respond to a request for comment.