A recent suit by one investment fund against a large private equity fund is an example of a highly unusual investment related claim, and demonstrates the need investment related organizations have for professional liability insurance. What makes this lawsuit unusual is that one shareholder of a company is suing another potential shareholder, and both parties are investment funds.
In this case (see here & here), an investment fund bought stock in a company after a large private equity fund announced a deal to buy the company. After the private equity fund pulled out of the deal the stock price fell and the investment fund lost money. The investment fund sued the private equity fund claiming the private equity fund made deceptive statements about its intentions to follow through on the deal.
Investment organizations are subject to all types of suits, not just suits from clients. Investment organizations that need professional liability insurance coverage include the following:
- Registered investment advisors
- Broker/dealers
- Hedge funds
- Private equity/venture capital funds
- Investment consultants
- Trustees
Note that claims against an investment firm alleging negligence are typically not covered under a Directors & Officers (D&O) insurance policy.
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