Bankruptcy’s Protection For Non-Debtors From Securities Fraud Litigation

Given the recent economic climate, the judiciary faces an all too familiar challenge: navigate through the web that is bankruptcy and securities fraud. So far, bankruptcy has evolved into a tool to resolve mass tort litigation, like securities fraud. However, this Article explores bankruptcy as a tool to resolve securities litigation against non-debtors, those that never file for bankruptcy protection. The protection the Bankruptcy Code provides to non-debtors, like officers and directors, goes largely unnoticed, much to the detriment of securities fraud victims.

Mindful that we now are in the midst of another financial crisis and that attention will slowly turn to the courts to pick up the pieces, this Article explores the significant protection non-debtors obtain from their debtor-company’s bankruptcy filing and the adverse consequences it has for securities fraud litigants seeking recovery from these non-debtors.