RPLU 9 Public/Financial D&O Liability
Insurance. Exam Questions And Answers
100% Pass.
What is the difference between a Section 10(b) or Section 11 securities lawsuit and a derivative lawsuit?
- answerSection 10(b) and Section 11 lawsuits are brought by shareholders for their own personal
loss...
What is the difference between a Section 10(b) or Section 11 securities lawsuit and a derivative lawsuit?
- answer✔Section 10(b) and Section 11 lawsuits are brought by shareholders for their own personal
losses and damages. By contrast, a derivative lawsuit is filed on the Company's behalf for losses the
company suffered. In a derivative lawsuit, the individual shareholder receives no award or damages if
the lawsuit is successful.
What is alleged in derivative lawsuits? - answer✔Derivative lawsuits allege that directors breached their
duty to the Company and shareholders and somehow damaged the Company.
How can the Board of Directors respond to a Derivative Demand? - answer✔A Board can (1) Ignore the
Demand (2) Reject the Demand or (3) Convene an SLC to investigate the allegations. After a thorough
investigation, the SLC can then (1) Take Corrective Action that may include filing litigation against a
Director or Officer, or (2) Make a finding of no wrongful conduct and close the investigation.
What is the demand requirement? Demand futility? - answer✔The demand requirement is a demand by
shareholders that the Board take the action they request on the Company's behalf. If there are no
disinterested Directors, then the demand may be futile. In this case, shareholders may skip the demand
requirement and go to Court claiming demand futility.
What types of problems in recording revenue may lead to the restatement of earnings? - answer✔Early
recording of revenue, false revenue, or not recognizing discounts or vendor incentives in the correct
amount over the time period can all result in a Company's restatement of revenue.
What can high operating margins indicate about a Company and its industry or sector? - answer✔If a
Company has much higher operating margins than other Companies in its industry or sector, then this
may be due a lack of competition, or the Company may have some type of Competitive advantage.
Some industries typically have higher operating margins than others.
Market Capitalization (market cap) - answer✔Indicates both the Company's size and value
Large Cap - answer✔>$5 Billion
Mid Cap - answer✔$500 Million to <$5 Billion
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