Last week, Corporate Counsel published an article that we wrote on environmental liability exposures for corporate directors and officers. You can read the full article here. Companies and their directors and officers are subject to regulatory scrutiny by a variety of state and Federal regulators, including the EPA as well as the SEC, both of which have indicated an enhanced enforcement agenda. Coupled with that increased regulatory emphasis is the potential for tag-along shareholder litigation against directors and officers: (1) Securities class actions arising out of alleged failures to disclose environmental risks and liabilities, including scrutiny by state and federal regulators and compliance with state and federal environmental regulations; and (2) Derivative claims against directors and officers for breach of fiduciary duty, waste of corporate assets (for payment remediation, cleanup and penalties) and unjust enrichment, as well as significant and potentially costly corporate governance changes.
As if to underscore the points we made in our Corporate Counsel article, a securities class action filed last week in Florida, Oklahoma Firefighters Pension & Retirement System v. Rayonier Advanced, Inc., et al., M.D. FL, C.A. No. 15-cv-00546, alleges violations of the ’34 Act’s anti-fraud provisions arising from undisclosed and/or misrepresented environmental liabilities. According to the Plaintiffs’ counsel:
[Rayonier] improperly recorded and/or failed to record on its publicly issued financial statements material liabilities for environmental remediation and related obligations in violation of Generally Accepted Accounting Principles (“GAAP”). [Rayonier] also failed to provide sufficient disclosure to investors to permit a meaningful evaluation of the true scope and extent of these environmental remediation and related liabilities, which were associated with decades of environmental pollution. These materially misleading misstatements and omissions regarding the Company’s financial results occurred, in large part, because of at least the following: (1) Defendants incorrectly accounted for [Rayonier] ‘s remediation and long-term monitoring and maintenance for environmental liabilities; (2) as a result, the Company understated its Environmental Reserves; (3) as a result, the Company did not record appropriate reserves as required by GAAP; (4) as a result, the Company did not disclose a range of possible reserves for probable and reasonably estimable environmental remediation and related liabilities as required by GAAP; (5) as a result, [Rayonier] did not properly estimate known and probable environmental remediation obligations as required by GAAP; and (6) as a result, [Rayonier] did not maintain adequate internal and financial controls.
In addition, the Complaint alleges that Defendants misled investors about the true demand for some of its products, including acetate.
Take a look at the article and let me (firstname.lastname@example.org) know if you have any questions or comments about this important issue: With federal regulators scrutinizing companies for environmental hazards and disclosures, companies should be as diligent about their D&O coverage as they are about pollution coverage.