As previously reported here, on January 16, 2008, a jury in the Apollo Group securities class action found that Apollo Group misled investors and held the company liable for $277 million in compensatory damages. However, the district court recently overturned the jury’s verdict. In re Apollo Group, Inc. Securities Litigation, 04-CV-2147-PHX-JAT (August 4, 2008).

In its post-trial motion, Apollo Group argued that the evidence at trial was insufficient to support a finding that there was any “corrective disclosure” that caused any loss to the plaintiff class. Judge James Tilburg, the federal district court judge, found that the Apollo Group shareholders did not prove that the original disclosure at issue in the securities class action (the Education Department’s review of the company that found that the company had violated federal law in the way it compensated college recruiters) triggered the relevant stock drop that allegedly caused the plaintiff class's loss. When news of the Education Department’s review was publicly disclosed, the price of Apollo Group’s shares did not drop. Only after an analyst’s downgrade, a full week later, did a significant stock drop occur. The judge disagreed with the plaintiff class’s argument that the analyst's downgrade represented a “corrective disclosure” that was sufficient to prove loss causation, an essential element for proving a section 10(b)/Rule 10b-5 violation.

Although Apollo was ultimately successful on the merits in the securities class action, it may have experienced a financial loss in terms of paying out defense costs that exceeded its available D&O insurance. As the costs of defending complex litigations continue to rise, companies should examine their D&O insurance policy limits to make sure they are adequately covered for the tremendous costs of litigating complex actions, especially if they want insurance coverage to be available all the way through trial and any appeal.