Diversified Directors & Officers
Private Equity Fund Claims Scenarios

The following lawsuits have been filed against venture capital entities and their directors, officers, partners or similar individuals. Keep in mind that, in addition to the damages and settlement numbers, significant defense costs have been incurred in these cases.

Claim I
A venture capital corporation loans money to and invests money in a home security alarm business and, as a result, obtains a seat on the board of the business, as well as various rights in the business. The business ultimately files for bankruptcy and the venture capital corporation and its directors and officers are then sued by, among others, the public investors of the business and the bankruptcy trustee of the business. These plaintiffs claim that the defendants dominated and controlled the business, caused the business to enter into speculative investments and forced the business to enter into questionable loan transactions with the venture capital corporation. The plaintiffs also claim that the defendants failed to identify and address the continuing financial decline of the business and misrepresented to investors the true condition and prospects for the business.

Settlement by Defendants and Their Insurers: $28 Million

Claim II
The founders of a recycling business sue a venture capital corporation and several of its officers and affiliates claiming that they conspired to acquire fraudulently ownership and control of the business without compensating the founders for their interests in the business as its principal shareholders. The founders allege violations of RICO, federal securities laws and state laws.

Alleged Damages: $63 Million

Claim III
Three venture capitalists and the partnerships with which they are associated are sued by the founders of a computer software company. The founders claim that the venture capitalists seized control of the company and issued new stock at below market prices, which had the effect of diluting the value of the founders' holdings.

Alleged Damages: $40 Million
Settlement by Defendants: $15 Million

Claim IV
A venture capital limited partnership, its general partner and the limited partnership's representative on the board of a portfolio company were among those named in a securities class action alleging claims under Sections 11 and 15 of the 1933 Act and Sections 10(b) and 20(a) of the 1934 Act for alleged misrepresentations and omissions in the prospectus with respect to the financial condition of the portfolio company. The general partner of the venture capital limited partnership was dismissed from the lawsuit but the limited partnership itself and the outside director were kept in the action on the basis of control person liability. The outside director was kept in as a control person on the basis of his portfolio board membership, his 3.9% stock ownership of the portfolio company and his contractual relations with the portfolio company.

Settlement by Defendants: $4.75 Million in Cash and Securities

Claim V
Investors in a computer technology company brought a securities class action against the company, its directors and officers and the venture capital investors of the corporation, including general partners of such venture capital investors who were serving on the board of the company. The investors allege that the company went public knowing that a competitor was about to release a product that would reduce the company's market but not telling potential investors of this development. The company went public at $12 and the investors filed their action after the share price had fallen to $5.50 resulting in substantial market capital loss.


The above claim scenarios should in no way be interpreted as being covered in full or in part by a specific policy of insurance issued by the Hartford Financial Services Group. Please refer to the actual policy wording for full coverage description, including conditions, exclusions and restrictions that may apply.