TheCorporateCounsel.net

We’ve previously blogged about Covid-19 related securities litigation, but this Proskauer blog flags something a little different – derivative litigation targeting comp awards that the plaintiffs essentially claim were “spring loaded” due to the pandemic-related market volatility:

While we are growing accustomed to pandemic-based shareholder actions relating to improper health and safety disclosures or misrepresentations relating to COVID-19 treatments and tests, this month brings a novel variant of the COVID-19 lawsuit. A Universal Health Services Inc. investor has filed a derivative suit against company officers and directors, claiming they took advantage of a pandemic-related drop in the company’s stock price to grant and receive certain stock options that were unfair to the company and its stockholders.

The plaintiff investor claims that “company insiders took advantage of the temporary drop in the company’s stock price to grant and receive options to buy the company’s stock at rock bottom prices, thereby showering themselves in excessive compensation.” The complaint alleges that the drop in stock price was “not caused by any changes in the company’s fundamentals or business prospects,” but instead was entirely attributable to the effect of the pandemic on the markets writ large.

The blog points out that the timing of the awards was pretty terrific from the recipients’ standpoint. The stock popped 25% the day after they were granted and by 47% within a week. According to the complaint, in just twelve days, the defendants reaped over $30 million in gains. The complaint alleges that the officers who received the grants unjustly enriched themselves and that the comp committee committed waste in making the awards.

– John Jenkins