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In fact, regulatory oversight often imposes political agendas that may lead to litigation brought by the regulators or third parties against directors.
Relatively few lawsuits against directors arise from a clear-cut intentional tort such as fraud or embezzlement.
The SEC may also enter into cooperation agreements, deferred prosecution agreements and non-prosecution agreements.
Government inquiries by and settlements with the SEC, Department of Justice (DOJ) and other agencies increase the scrutiny of company records, require directors to provide added oversight, multiply risks of private litigation and may limit the company's business operations and restrict the conduct of officers and directors.
Specifically, the statute provides that directors who approve "the declaration of any dividend or other distribution of assets to the shareholders contrary to the provisions of this act or contrary to any restrictions in this certificate incorporation" will be liable to the corporation, which acts on behalf of its creditors or shareholders.
The duty of loyalty owed by directors prohibits a director from advancing personal or business interests, or interests of others, at the expense of the corporation.Each director, before entering into any settlement agreement with a government agency binding on the company and/or its insiders, needs to fully understand the provisions, the procedures required to ensure compliance, the potential for any criminal charges and the consequences to the company and individual directors of any future violations of the agreement.Settlements of enforcement actions, as originally drafted and presented by the regulators, are broadly worded, leaving maximum discretion and interpretation with the regulator.Conflicts of interest may arise unless a complete identity of interest (, same shareholders and creditors) exists among all entities within the affiliated group.Regulated industries often encounter further risks. Although regulatory agencies provide some oversight, directors can take little comfort from a litigation perspective—as a company cannot bring a cause of action against an agency for negligent regulatory supervision.