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NIXON PEABODY WINS APPEALS COURT RULING -- FORMER DIRECTOR FOUND LIABLE FOR INSIDER TRADING BY THE SEC MUST PAY HIS OWN LEGAL FEES
Jonathan Sablone, a partner with Nixon Peabody LLP, represented Corning, where a recent and rare appeals court ruling will likely set a national precedent for future insider trading cases and affects every officer or director of a company. The U.S. Court of Appeals for the First Circuit has ruled that a former director of Corning NetOptix Inc., who was found liable in an insider trading case brought by the SEC, must pay for his own legal fees. This decision is extremely rare in that it required a former director to pay back approximately $1 Million in legal fees that were advanced to the director by the company.
The SEC brought a civil insider trading case against Robert Happ, the former director, who lost the case, and was found liable for insider trading. At the initiation of the SEC case, Happ sought advances from the company to cover his defense costs, and eventually brought suit against Corning and Corning NetOptix claiming that the advances were not sufficient or timely. Corning had agreed to pay for Happ's legal expenses, but only after he signed an undertaking requiring him to pay back such advances if he did not "act in good faith and in the best interests of the company." Corning brought a counterclaim against Happ seeking return of the approximately $1 Million in legal fees advanced pursuant to the terms of the undertaking. The federal district court judge entered judgment in Corning's favor on all of the claims and required Happ to pay back the advanced sums. The First Circuit affirmed the federal district court judge's order.