Protecting Investors in a Time of Crisis: A Response to Those Who Would Utilize COVID-19 to Eviscerate Investor Protection

Mark LebovitchJeroen van Kwawegen, and Greg Varallo are partners at Bernstein Litowitz Berger & Grossmann LLP. This post is based on their BLB&G memorandum. This post responds to an earlier post on the Forum, The Crisis and the Activists and Raiders.

We live in troubled times. The current pandemic crisis poses challenges to all of us and more broadly to the system of justice in which we collectively work. But it is precisely at times such as these when ideas like “access to justice” and “investor protection” become more, not less relevant.

On March 23, 2020, a leading corporate law firm posted a memo decrying a supposed “flood of filings,” which it characterized as “in support of imagined and plainly non-exigent derivative lawsuits.”[1]  The memo asserted that “deadlines created by litigation of this sort” should not be permitted to burden an overtaxed legal system. No evidence for this “flood of filings” was offered beyond the firm’s say-so. A day later, the author of the memo told Reuters that it is “implausible,” “impracticable” and even “unethical” for investors to pursue their claims at this time. [2] On March 25, the same firm issued a client memo describing activist stockholders as a “menace to American companies.” [3] Other firms have taken a more balanced view, recognizing that it is a “mistake” to “dismiss or defer concerns about….investor litigation,” which is often more active in periods of “market volatility and uncertainty.” [4] However, the fact that leading members of the corporate bar would suggest shutting the door on litigation brought to protect investors is more than troubling.

As members of a leading firm fighting to help investors protect their rights, we wholeheartedly recognize that the world is living through difficult times and that discretion must be brought to decisions concerning the need to seek relief from the Courts during the current Covid-19 crisis. However, any suggestion that the judicial system should become closed to genuinely aggrieved investors, even during a time of crisis, strikes us as misplaced, and even dangerous. We respectfully disagree that the crisis renders investor protection “non-essential” or that the pursuit of claims on behalf of investors is “unethical” now—or at any other time. When the defenders of the status quo anoint themselves as being above compliance with “deadlines created by litigation of this sort,” they put at risk the system that has served to help ensure the integrity of our markets and to encourage effective attention by corporate leaders to their fiduciary responsibilities.

Indeed, to suggest that investor rights should be marginalized generally reveals a view fundamentally at odds with the central role our justice system plays in democratic society. When fraud and self-interested conduct by corporate fiduciaries takes a holiday (whatever the reason), so too will the need for investor protection. In our view, however, greed and self-interested motives can override legal compliance and fiduciary duties whether or not the world faces a crisis. Indeed, whether the wrongdoing rears its ugly head in the form of illegal inside trading, market manipulation, or opportunistic misappropriation of corporate value, the background of markets in crisis may well offer more opportunity for misconduct than is typical.

Moreover, as far as we can see, responsible shareholder rights firms (including our own) have proactively taken meaningful steps to address the seriousness of the current crisis and alleviate the burdens on the judiciary and members of the defense bar—many of whom are our repeat professional adversaries and personal friends. For example, we have proactively extended deadlines—especially for depositions—with assurances to our colleagues on “the other side of the V” that further appropriate extensions will be given. Many of us are former defense lawyers from large corporate firms and understand all too well the difficulties of managing client relationships and obtaining discovery during these difficult times. Our flexibility also extends to newly filed cases and requests for corporate books and records under Section 220 or other state equivalents. We must protect our clients’ rights, including by filing actions when needed to preserve their standing, but we are taking the slowdown on many matters as an opportunity to be as thoughtful and thorough in investigating claims before filing them as can ever be expected. In our experience, most members of the defense bar are equally willing to extend professional courtesies to us: the crisis is bringing out the best in most of us.

The same is true of the judiciary. We have been impressed by the speed and agility of many Courts, including Delaware Chancery and many federal Courts around the country, in maintaining access to justice while dealing with this crisis. Within days of executive orders placing large parts of the country under strict “stay at home” orders, Courts started holding telephonic hearings on pressing matters. We applaud these efforts because all too often, “justice delayed is justice denied.” This is also true in the case of justice for shareholders who were defrauded by corporate misconduct or who suffered from fiduciary misconduct, including our many institutional shareholder clients who are protecting the interests of their beneficiaries and pensioners at a time that portfolio values are being pummeled by many outside events.

We hope the damage from this crisis is limited and that it is passing. We also believe deeply that access to justice is critical to the functioning of our society. Accordingly, while recognizing that other matters may be more pressing, we will continue to press forward the fight to protect our clients’ rights. We will do so in a way that recognizes our shared humanity and with an appropriate degree of empathy when deadlines do need to be adjourned and matters rescheduled. And while we will be careful to be sure we firmly believe in the strength and necessity of any actions we file for our clients, we will not hesitate to seek judicial relief when we believe doing so is necessary to protect investors’ rights.

Most importantly, we commend the Courts for their courage and determination to carry on in troubled times. We will not for a moment, however, indulge the suggestion that there should be a “suspension” of investor protection under law. We sincerely hope that the Courts will agree.


1Savitt, W., Litigation Priorities and the Crisis, available at back)

3Lipton, M., The Crisis and the Activists and Raiders, available at back)

4 Mitchell, E., et al., COVID-19 Creates New Regulatory Priorities and Litigation Risk for Public Companies and Market Participants, March 30, 2020, available at back)

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