The Impact of the Laperriere Decision: Parent Companies Face Liability

by Thomas A. Dubbs, James W. Johnson

February 01, 2009

The Eleventh Circuit Court of Appeals recently issued a decision that would make directors of parent companies liable for securities law violations of subsidiary companies in certain instances.

Imagine this scenario: Company B is a wholly-owned subsidiary of Company A. Company A spins off Company B, but retains a third of the stock after a public offering. Company A is named as a defendant in a subsequent securities fraud lawsuit stemming from fraud that occurred in Company B after the spin off. The plaintiffs have alleged that Company A is a "control person" of Company B under the securities laws. Is Company A liable for damages, and if so, how much should it pay relative to Company B?

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