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SEC Enters Settlement in SPAC-Related Enforcement Action Against Akazoo

As I have noted on this site, the SEC has in recent months filed SPAC-related enforcement actions, including the action filed in July 2021 against Stable Road Acquisition Corporation (discussed here), and the Y, 2021 action filed against Nikola Motors founder Chad Milton (discussed here). These matters were not, however, the first SPAC-related SEC enforcement actions; there have been others previously, including the September 2020 SPAC-related enforcement action against music streaming company Akazoo, S.A. In something of a milestone regarding SPAC-related actions, on October 27, 2021, the SEC announced that it had reached a settlement of the Akazoo enforcement action. The SEC’s October 27, 2021 press release about the settlement can be found here. The October 27, 2021 Agreed Final Judgment in the Enforcement Action can be found here.

Background

According to the SEC’s complaint against Akazoo (a copy of which can be found here), Akazoo claimed to be an emerging-markets-focused music streaming service with nearly 40 million registered users, nearly five million subscribers, and over $120 million in annual revenue. In actuality, the SEC alleged, the company had no paying users and negligible revenues. Akazoo, the complaint alleged, leveraged these misrepresentations to enter into a September 2019 business combination with the special purpose acquisition company (SPAC), Modern Media Acquisition Corporation (MMAC). (Further background regarding the SPAC and the business combination are further detailed in the separate private securities class action lawsuit that investors filed against Akazoo and others in April 2020, as discussed here.)

As a result of the business combination, Akazoo’s shares became listed on Nasdaq. The SEC alleged that after the shares began publicly trading, Akazoo “proceeded to defraud” investors by misrepresenting that it had earned tens of millions of dollars in revenue during 2019 and increased the number of subscribers 28%. In reality, the SEC alleged, the company in fact had limited operations and no subscribers, “all while depleting more than $20 million in investor funds.”

According to its recent press release describing the settlement, the SEC filed an “emergency action” against Akazoo in order to “preserve the company’s remaining $31.5 million in cash and other assets.” In April 2021, without admitting or denying the SEC’s allegations, Akazoo agreed to a bifurcated judgment that permanently enjoined the company from violating the antifraud provisions of the federal securities laws.

The SEC enforcement action settlement announced on October 27, 2021 fully resolves the SEC litigation by ordering Akazoo to pay $38.8 million in disgorgement, an amount, the press release states, “that will be deemed satisfied by the company’s payment of $35 million to investors and victims of settlements in connection with several private class action lawsuits.” The separate April 2021 settlement of the private securities class action litigation is described in detail in a prior post on this site, here.

Discussion

This sequence of events, including the settlements, along with the other SPAC-related enforcement actions show the extent of the SEC’s interest in monitoring SPAC-related transactions and market activities. Indeed, the SEC’s October 27 press release announcing the Akazoo settlement includes a statement from an SEC official as saying that “The SEC is intently focused on SPAC merger transactions, and we will continue to hold wrongdoers in this space accountable.”

For insurance and legal practitioners active in the SPAC arena, both halves of this SEC’s official’s statement are noteworthy; first, it represents a declaration that the agency is not just watching SPAC activity but is in fact “intently focused” on it; and, second, it represents a further declaration that the agency is going to continue to pursue alleged misconduct in SPAC-related activities.

The SEC settlement itself is a little bit unusual from my perspective. The enforcement action settlement is really just a piggyback on the separate private securities class action lawsuit settlement. This kind of an arrangement may not be unusual, but off the top of my head I don’t recall seeing a prior instance where the SEC so clearly accepted a private securities litigation settlement as sufficient to fulfill the agency’s objectives in filing its own enforcement action.

The SEC official’s statement in the press release includes a comment with respect to the settlement of the Akazoo action to the effect that “One goal in filing this emergency action was to preserve assets for the benefit of injured investors, and this resolution accomplishes that goal.” It is, in my experience, a rare occasion in which the SEC so expressly acknowledges that separate private securities litigation has sufficiently fulfilled the agency’s objectives in seeking to compensate injured investors.

There are a number of aspects of the circumstances involved here that are work considering in connection with the more recent wave of SPAC-related securities class action litigation. That is, by my count, there have been 26 SPAC-related securities class action lawsuits filed in 2021 alone. The Akazoo securities suit, as well as the SEC’s enforcement action, were both filed in 2020, and so the Akazoo suit is not reflected in the tally of 2021 actions. However, though the Akazoo suit relates to an earlier time period, some of the allegations in the case are similar to many of the allegations in the more recently filed actions. For example, both the private securities suit against Akazoo and the SEC enforcement action related to a collapse in the company’s share price following publication of a short-seller report raising questions about the company’s operations and finances. As I noted in a recent post (here), ten of the 26 SPAC-related securities suits involving companies whose share prices declined following publication of short-seller reports. In addition, another of the SPAC-related securities suits filed in 2020, the high-profile lawsuit against Nikola, also contain allegations of a decline in the company’s shares following the publication of a short-seller report. Clearly, it is not just the SEC that is focusing on SPAC-related transactions; short-sellers are as well.

But the most important point about this enforcement action and the settlement is that the liability risks that SPAC transactions and SPAC-related cases include not only the possibility of private securities class action litigation, but also the possibility of SEC enforcement action. The ultimate outcome of the action also reinforces the observation that the risk of litigation and enforcement activity can result in significant costs and recoveries. The fact that Akazoo had to fight parallel private securities litigation and SEC enforcement action also has defense cost implications that could be important for post-SPAC-transaction companies will want to take into account when assessing the adequacy of their D&O insurance limits.

In connection with the magnitude of this settlement, it is worth recalling, as I noted in my post about the prior Akazoo securities class action settlement, that the securities suit settlement was only a partial settlement, as the insurer’s on Akazoo’s post-merger go-forward D&O insurance program, as well as certain other parties, did not participate in the settlement. The $35 million settlement was funded in part by a cash payment from Akazoo itself, and a $9 million payment by MMAC’s D&O insurer. Depending on the outcome of the ongoing Akazoo private securities litigation (and perhaps attendant insurance coverage litigation), the ultimate aggregate cost of resolving the Akazoo litigation could prove to be more than $35 million.

One final note. The sequence of litigation events relating to Akazoo involved first a securities class action lawsuit and then a subsequently filed SEC enforcement action. The recent events relating to Stable Road Acquisition Corporation, which was recently hit with an SEC enforcement action (as discussed here), was that first the SEC filed its enforcement action, and then plaintiff’s attorneys filed a separate private securities class action lawsuit based on the same allegations. The point here is that the private securities litigation and SEC enforcement activity is not mutually exclusive – as in fact the settlement of the Akazoo enforcement action discussed above underscores.

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London Again (Finally)

The Palace of Westminster

It is with a great deal of pleasure that I finally get to say this again after a long wait: The D&O Diary was on assignment in London last week. With two COVID vaccinations under my belt and a booster shot to boot, I just decided it was finally time to start traveling again. It was great being back in London and re-acquainting myself with one of my favorite cities. Pandemic precautions made some parts of the trip awkward, but in most other ways it felt almost normal to be traveling again.

The primary purpose of my trip was to participate in a conference organized by The Geneva Association and held at Lloyd’s entitled “Evolving Liability Conference 2021: Long-Time Liability Implications of Pandemics.” I was a speaker on a panel entitled “Implications for Insurers from Shifts in Liability Standards/Duties of Care Following the COVID-19 Episode.” The conference was a hybrid event, with some audience members and speakers attending live, and other audience members and speakers attending virtually. It was really a pleasure to be at a live industry event again (even if only partially so), the first I have attended since February 2020. It was also great to be at Lloyd’s again. The event was interesting, thought-provoking, and well-run. I would like to thank The Geneva Association, and in particular GA’s Darren Pain, for inviting me to be a part of this excellent event.

Here’s a picture of our panel, following the session. From left to right, Darren Pain of The Geneva Association (moderator); Neal Beresford, Clyde & Co; John Pilkington, Ascot Syndicate; me; and Andrew Hornsblow, Dale Underwriting Partners

 

It was a particularly special part of my visit to Lloyd’s in connection with the conference to be invited to dinner in the famous Adam Room, an enduring vestige of venerable Lloyd’s traditions in the present-day ultra-modern building.
The dome of St. Paul’s viewed from the 11th Floor of the Lloyd’s Building

 

In addition to the conference and meetings, I did also have the opportunity to try to refamiliarize myself with London. The weather originally predicted was unpromising, with rain forecast every day. Fortunately for me, the weather turned out much better than predicted. I  used my umbrella only once, and otherwise I generally enjoyed pleasant weather and even sunshine during the rest of my visit. I took advantage of the agreeable conditions for a great deal of walking, particularly along the river.

It was a beautiful Sunday morning for a walk in Hyde Park on my first full day in London

 

After the walk, it was time for a traditional Sunday Roast at a pub on Old Brompton Road. Roast chicken in gravy, roast root vegetables (carrots, turnips, and parsnips), with a Yorkshire Pudding filled with sausages, and a little side salad.
After lunch it was time for an afternoon concert at Cadogan Hall in Sloane Square. It was such a nice afternoon outside it was hard to go indoors.

 

It was beautiful indoors as well. Cadogan Hall is such a great music venue. The concert was a performance of Beethoven’s Fifth Piano Concerto. The concert was part of what had been planned as a series of five concerts of Beethoven’s five piano concertos, with Elizabeth Sombart at the piano, to celebrate the 250th anniversary of Beethoven’s birth. I attended the first concert in the series in November 2019, the last time I was in London. However, due to the coronavirus outbreak, the second, third, and fourth concerts in the series were cancelled. The fifth concert was rescheduled to a time that coincided to my recent visit and there was a certain symmetry to my being there.

I had other opportunities for long walks during my visit, including in particular as part of separate side trips to Richmond and to Hammersmith, two riverside towns west of London.  Both communities have pleasant riverside walkways (and on either side of the river, actually). One particularly fortunate attribute of the weather conditions that prevailed while I was in London was that it seemed to clear up and become sunny late in the afternoon each day. My late afternoon riverside walks in both cities were really enjoyable.

Richmond Green, a roughly 12 acre open space at the center of the town of Richmond. A very pleasant place on a fall afternoon. Legend has it that in the Middle Ages jousting tournaments took place on Richmond Green.

 

A view of the Thames River looking west from Richmond Bridge
The riverside at Hammersmith, viewed from the south shore. Note that the river is at low tide.

 

Hammersmith Bridge at dusk

My London visit did involve more than just walking through parks and along the river. I did also work a couple of museum visits into the trip, in both cases going to museums that I had not previously visited, Tate Britain and the Imperial War Museum.

Tate Britain exhibits British Art from the 15th to the 20th centuries. It has a particularly fine collection of paintings by J.M.W. Turner.

 

The Imperial War Museum. I never made time in prior trips to visit, but I now see that that was a mistake. It is an excellent museum, with designed displays highlighting interesting historical artifacts. The new WWII exhibit is particularly well done.

I also took advantage of being back in London to do some important shopping, basically replenishing critical supplies that had run short during the long travel interregnum.

Fortnum & Mason, the Royal Grocer, on Piccadilly. During my visit there, I stocked up on indispensables such as tea, coffee, and chocolate.

 

Just a few steps east of Fortnum & Mason on Piccadilly is Hatchard’s, the oldest book store in London. I spent the afternoon in the History Books section and came away with an armful of books (I brought a separate carry bag with me to London in anticipation of the need to transport books back home).
Another famous London bookstore, Daunt Books, on Marylebone High Street. The store has an eccentric organization; it groups the books by country (with fiction and nonfiction arranged together). It as an interesting place with a lot of interesting books, in an interesting arrangement.

 

The original Twinings tea, on The Strand (directly across the street from the Royal Courts of Justice). It was Britain’s first tea room when Thomas Twining opened it in 1706, and it as been operating on the site ever since.

For most of my London visit, things seemed more or less normal, despite the pandemic. I was comfortable traveling on the London Underground. Most passengers on the Tube were wearing masks, as were most people in shops and stores. However, on the street and in pubs, few people wore masks. As is the case in the U.S., there seems to be a split in the U.K. about how to deal with the pandemic. On my final day in London, there was a protest march on Piccadilly against vaccine passports and vaccine mandates.

Almost none of the marchers were wearing masks – and what could go wrong with tens of thousands of unvaccinated and unmasked marchers chanting, singing, and shouting? I kept my distance…

 

Air travel felt more or less normal as well, although as a result of the cumulative requirements of the U.S. and U.K governments, I did wind up getting tested for COVID-19 three times in less than ten days. There was a fair amount of process involved as well; a great deal of uploading of documents, filling out online forms, presenting attestations, and so on. It all seemed pointless because I had to present the actual physical documents multiple times on both ends of the trip and all of the boxes had to be check all over again as well. In the end, the planes did fly and I did get where I wanted to go. Overall, based on my experience, it does seem like the time to start traveling again may have finally arrived.

And it really was good to be back in London again.

Green Park, the viridescent heart of London. My favorite place. It was good to be back.
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FTC Issues Dark Forecast for Dark Patterns in Subscription Auto-Renewal

With Halloween just days away, it is perhaps fitting that the FTC has issued a new enforcement policy statement warning companies not to employ dark patterns to trick customers into a subscription plan. As we covered previously, the FTC has identified dark patterns—or website design features used to deceive consumers—as a priority for both rulemaking and enforcement actions. The timing of the announcement is a bit curious as the FTC is in the middle of a rule making on negative option marketing. More below from Commissioner Wilson on that.

The enforcement policy statement in many ways reflects the requirements of the Restore Online Shoppers Confidence Act (ROSCA) and established FTC precedent regarding negative option marketing. The FTC has been active against companies who hide their subscription programs behind links, have made customers undergo several attempts to cancel their subscription, or companies who failed to disclose that the benefits of their subscription did not exist anymore.

In the policy statement, the FTC sets out three major requirements, similar to those found in ROSCA, for companies to abide by when offering anything on a subscription or auto-renew basis:

  1. Clear and Conspicuous Disclosure: The material terms of their subscription program (i.e. the amount that will be charged, the frequency of these charges, and the cancellation policy) must be clearly and conspicuously disclosed to customers before they purchase it. The policy specifies how companies should disclose these terms.
  2. Express Informed Consent: To enroll a customer in a subscription program, a company must obtain that customer’s express informed consent. To obtain this consent, the company must receive it separately from any other part of the transaction, meaning that the customer must specifically agree to the terms of the subscription program. This consent cannot include or contain any other information that would distract the customer from understanding the terms and the consent must be clear and unambiguous.
  3. Easy Cancellation: Companies should create a clear and easy system whereby a customer can cancel their subscription. The customer should not have to call multiple times or hunt for a way to cancel—it should be clearly labeled and easy to accomplish, so that it is at least as easy to cancel as it was to sign up for the subscription.

The FTC voted to issue this enforcement policy 3-1, with Commissioner Christine S. Wilson dissenting stating that this enforcement policy merely gets in the way of an ongoing rulemaking process on negative option marketing. In concurring, Commissioner Phillips suggested that the policy statement might make the rule unnecessary.

How the FTC intends to use the policy statement in enforcement remains unclear. Perhaps the FTC will point to the policy statement as proof “a reasonable man would have known … [conduct] was dishonest or fraudulent” for purposes of a Section 19 follow-on proceeding after an administrative trial. The FTC can already pursue, without an administrative proceeding, ROSCA violations under Section 19 and negative option violations under the TSR in the same manner.

What is clear is that dark patterns remain a high priority for the agency. Stay tuned for updates on exactly what website design features and digital marketing methods the agency intends to target.

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Deep-Sea Mining Company Hit with SPAC-Related Securities Suit

A Canadian-based deep-sea mining company is the latest firm to be hit with a SPAC-related securities class action lawsuit. The company, which plans to mine the seabed for materials to be used in electric vehicles batteries, merged with a SPAC in September 2021. The company’s share price recently declined following news reports and a short-seller report questioning the company’s financing, licensing, and its claimed sustainability credentials. A copy of the October 28, 2021 complaint can be found here.

Background

Sustainable Opportunities Acquisition Corp. (SOAC) is a special purposed acquisition company that completed its IPO on May 5, 2020. On March 4, 2021, SOAC announced its plan to merge with Deep Green, Inc. The two companies completed their business combination in September 2021. The combined company changed its name to TMC the metals company, Inc. (TMC). The shares of TMC began trading on Nasdaq on September 10, 2021. TMC is based in Canada and organized under the laws of the Cayman Islands.

TMC is a deep-sea exploration and mining company, focused on mining the seabed in certain specified areas for metals nodules. The recovered metals are to be used in electric vehicle batteries with the least possible negative environmental and social impact.

On September 13, 2021 (that is, just three days after the combined company’s shares began trading), Bloomberg published an article stating that two investors failed to supply $330 million needed to complete the private equity in public equity (PIPE) component of the transactions associated with the business combination that formed TMC. The Bloomberg article also questioned TMC’s “green credentials,” noting specific concern in the scientific community that TMC’s activities will damage sensitive ecosystems, accompanied by scientific calls for a moratorium on deep-sea mining. According to the subsequently filed securities complaint, the company’s shares fell 20% on this news.

Then on October 6, 2021, Bonitas Research, a short-seller, published a report raising multiple questions concerning TMC, including whether the company had overpaid to insiders for the seabed mining rights; whether the company had inflated its exploration expenses in order to mislead investors about the scale of its operations; and whether the company had a history of associating with “bad actors.” According to the complaint, the company’s shares fell 7% on this news.

The Complaint

On October 28, 2021, a plaintiff shareholder filed a securities class action lawsuit in the Eastern District of New York. The complaint names as defendants TMC; the CEO of Deep Green, who became the CEO of TMC following the merger; and the CEO of SOAC (the SPAC), who became a director of TMC following the merger. The complaint purports to be filed on behalf of a class of investors who purchased the shares of the SPAC prior to the merger and shares of TMC following the merger, between March 4, 2021 (the date the merger was announced) and October 5, 2021 (the trading day following the publication of the Bonitas Research Report). The complaint alleges that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint seeks to recover damages on behalf of the plaintiff class.

The complaint quotes extensively from the documents and public statements surrounding the merger announcement and the merger transaction. The complaint alleges that the defendants made false or misleading statements or failed to disclose that: “(1) the Company had significantly overpaid for [a seabed license] acquisition to undisclosed insiders; (2) the Company had artificially inflated its … exploration expenditures to give investors a false scale of its operations; (3) the company’s purported 100% interest in [the seabed license] was wholly owned by two Nauruan foundations and that all future income from [the license] would be used in Nauru; (4) Defendants had significantly downplayed the environmental risks of deep-sea mining polymetallic nodules and failed to adequately warn investors of the regulatory risks faced by the Company’s environmentally risky exploitation plans; (5) the Company’s PIPE financing was not fully committed and, therefore, the Company would not have the cash necessary for large scale commercial production; (6) as a result of the foregoing, the Company’s valuation was significantly less than Defendants disclosed to investors; and (7) as a result, Defendants’ public statements were materially false and/or misleading at all relevant times.”

Discussion

By my count, this lawsuit is the 26th SPAC-related lawsuit to be filed this year. Like many of the prior lawsuits, this lawsuit involves a company acquired by a SPAC that stumbled right out of the gate as a public company. Like many of the prior SPAC-related suits, the lawsuit involves a company involved in the electric vehicle industry (although in this case, not actually in the electric vehicle industry).

This lawsuit is also similar to many of the previously filed SPAC-related securities suits in that the lawsuit was filed after the company was the subject of a negative short-seller report. By my count, of the 26 SPAC-related securities lawsuits filed in 2021, ten have involved companies that were the subject of a negative short-seller report.

Also like many of the previously filed SPAC-related securities suits, the defendants named in this suit involve a former officer of the SPAC. In addition, again like many of the previous suits, the individual defendants are sued in multiple capacities; the TMC CEO is also named in his capacity as the CEO of the predecessor private company; the former CEO of the SPAC is also sued in his capacity as a current director of TMC. The potential liabilities of these individuals potentially could trigger coverage under multiple different policies, including both the SPAC’s runoff policy and the go-forward policy for the merged company. The involvement of multiple policies could lead to the kind of “Tower vs. Tower” coverage conflict that Silicon Valley attorney Boris Feldman wrote about earlier this year.

One final though. There are over 400 SPACs out there looking for merger candidates. As the time remaining the search period begins to decline, the possibilities for merging with a target company that is no more ready to become a public company than this one seems to increase.

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Climate Change-Related Breach of Fiduciary Duty Lawsuits?

In a recent post in which I reviewed recent legal developments in Australia, I discussed the growing possibilities for future climate change-related D&O claims. A recent paper highlights the extent of these D&O claim risks in the United States. The October 2021 paper, published by the Commonwealth Climate and Law Initiative and entitled “Fiduciary Duties and Climate and entitled “Fiduciary Duties and Climate Change in the United States,” discusses how evolving understandings of climate change has “changed the relevance of climate change to the governance of corporations,” with important implications for the fiduciary duties of directors and officers. The paper discusses how in the current legal environment in the U.S. a board’s failure to adequately regard climate change-related issues could lead to potential litigation and liability. A copy of the full paper can be found here, and an executive summary of the paper can be found here.

The paper opens with a review of the types of material risks that climate change poses for both the real economy and the financial system, across short, medium, and long-term horizons. The paper suggests that these risks at least three types of foreseeable risks: physical; economic transition; and legal liability. The physical risks involve natural environmental challenges arising from rising temperatures, increased drought, more frequent and higher intensity storms, and so on. Economic transition risks pertain to the challenges that changed climate conditions and regulatory environment may present. Legal liability pertains to risks from the litigation environment. In each case, the paper suggests, the risks have recently accelerated, including in particular during 2021.

With these risk factors as a starting point, the paper suggests that the failure of corporate board to consider and address these risks could serve as the basis for liability for individual directors and officers for breach of their fiduciary duties. These kinds of liability claims could be presented either on the basis of either an alleged breach of the duty of loyalty or an alleged breach of the duty of care.

In discussing the possibility of claims for an alleged breach of the duty of loyalty, the paper discusses the Caremark case and its recent progeny with stress that a loyal fiduciary  must exercise oversight of the organization on whose board the fiduciary. In discussing this duty of oversight, the paper discusses the Delaware Supreme Court’s 2019 decision in Marchand v. Barnhill, which held that boards must have systems in place allowing them to monitor mission critical operations and cannot disregard “red flags” that arise.

In light of these legal theories and recent legal developments, a director, the paper suggests, may be alleged to have breached their duty of oversight within the duty of loyalty by failing to adequately consider or oversee the implementation of climate-related risk controls. These kinds of allegations might arise, for example, for a director’s failure to monitor mission-critical regulatory compliance or failure to monitor climate-change related business risks. The paper notes that information presented to the board about climate change risks related to the company’s operations and finances could be both mission-critical and could represent the kind of “red flags” that could trigger duty of oversight-related liability. Specific areas of regulatory compliance that could be relevant in this context include environmental laws; health and safety laws; and human rights laws.

The paper goes on to suggest that the high-profile and economically significant issue of climate change also could impose duties on directors and give rise to potential liability based up on the duty of care. Under this duty, which required directors to make lawful, reasonably informed decisions, directors’ consideration of climate change issues is warranted – for example, consideration of risk assessment and management; strategy; supply chain integrity and resilience; asset valuation; financial planning. A “failure to consider the risks or opportunities presented by climate change for want of relevant knowledge – either in general, or in relation to material projects or acquisitions – appears to present ground for the review of the breach of the duty of care under Delaware law.”

The paper acknowledges that these kinds of claims may be difficult to establish and claimants would face formidable challenges in showing that the relevant liability standard has been met (as well as other formidable defenses). However, “these barriers may not be impossible to overcome in a particular factual context.” Moreover, shareholders may use access to a corporation’s books and records, including board materials, to try to support fiduciary duty claims. While “it is rare for directors and officers to be found liable for breaches of their fiduciary duties, the potential for an action for breach of duty is credible.” Moreover, the number of climate change-related cases globally, and in particular in the US, has increased significantly in recent years.” The capacity of determined litigants to bring claims, “whether motivated by a desire to seek compensation for economic loss or to drive corporate ambition on climate action,” should “not be underestimated.”

In order to try to reduce the risk of litigation and potential liability, the paper suggest a number of corporate governance steps that well-counseled boards and officers would be advised to adopt. The paper suggests a framework for analysis of potential climate change risk, which includes, for example, identifying climate change-related financial risks; the impact of climate change-related issues on strategy, competition, acquisitions and divestitures, and asset valuations; potential regulatory challenges, particularly across the various jurisdictions in which the company operates; and a wide variety of other issues.

Discussion

In my view, the paper provides a comprehensive overview of the potential for climate change-related issues to give rise to breach of fiduciary duty claims against corporate boards. Recent developments involving breach of the duty of oversight claims in Delaware (discussed for example here) suggest the possibilities for these types of claims against corporate boards. These and the other kinds of possible claims the paper discusses are unquestionably challenging to sustain. However, motivated claimants, particularly activists seeking to use litigation to drive a climate change-related agenda, may push these kinds of claims, as even unsuccessful claims could advance their agenda.

The paper is expressly focused on the potential for climate change-related breach of fiduciary duty claims, and therefore does not discuss at length the possibilities for other types of climate change-related D&O claims, such as securities class action lawsuit based on climate change related disclosures or omissions. However, the risk of climate change-related securities litigation is another significant D&O claim risk for corporate boards. In that regard, the paper’s analysis of the corporate governance steps well-advised boards should take is very valuable.

All of that said, I do think it is important to note that I have been writing about the potential risk of climate change-related D&O claims for nearly 15 years, and during that time, there have been very few claims that can be described as climate change related that have been filed. I don’t think this is likely to change any time soon; that is, I don’t think there is going to be some kind of rush of climate change claims. Rather, I think there will be a few cases filed, many of them as test cases in which claimants seek to test procedural approaches and substantive theories as they try to find approaches that will be successful – with “success” measured not only by success in the litigation, but also success in advancing a climate change agenda.

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Sunday Arts: Wagnerism

I have always felt an aversion to the works of Richard Wagner; his massive and melodramatic style, his well-known antisemitism, and the association of many of his operas with Nazi culture, have always seemed reasons enough to avoid his music. It was with some surprise then that, after hearing a fascinating radio interview of The New Yorker’s music critic Alex Ross, I found myself reading with interest and even enthusiasm Ross’s thought-provoking recent book, Wagnerism: Art and Politics in the Shadow of Music. In his book, Ross makes the convincing case that Wagner was and is one of the most important and influential artists of the modern Western era, even if many of his legacies and the use to which his art has been put are malignant. In this vast, intelligent book, Ross demonstrates that the works of a vast array of artists and writers reflect Wagner’s influence. Along the way, Ross also makes the case that, regardless of how your feel about Wagner, he cannot simply be ignored.

Wagner of course wrote several operas in the mid to late 19th century, including, among others, Tannhäuser, Lohengrin, Die Meistersinger, Parsifal, and perhaps most famously, The Ring cycle. Along the way, he also originated several musical techniques and ideas that have now become standard, such as the use of leitmotifs to express a psychological state or to set a mood. He introduced the idea of the Gesamtkunstwerk (total artwork), that is, a work of art that makes use of a variety of art forms. His work draws heavily on ancient sources, such as Arthurian legends, Norse sagas, and Greek myths. The characters in many of his stories are architypes, and he mines the elemental sources to invoke deep human urges and motivations. Audiences then and now have responded deeply to Wagner’s work. Many describe their experience of listening to Wagner (especially the Ring cycle) as “hypnotism,” “intoxication,” or “seduction.”

However, Ross’s book is not about Wagner or his work as such; instead, it is about the impact that Wagner’s music and ideas have had on subsequent artists, musicians, artists, and scholars – that is, the spread and diffusion of what came to be known as “Wagnerism.”

Ross describes Wagnerism as a “chaotic posthumous cult” that “traversed the entire sphere of the arts – poetry, the novel, painting, theatre, dance, architecture, film.” It also “breached the realm of politics” as both the Bolsheviks in Russia and the Nazis in Germany “used Wagner’s music as a soundtrack for their attempted re-engineerings of humanity.” The composer’s work, Ross writes, “came to represent the cultural-political unconscious of modernity – an aesthetic war zone in which the Western world struggled with its raging contradictions, its longings for creation and destruction, its inclinations toward beauty and violence.” The expression “Wagnerism” itself encompasses a multiplicity of meanings – it may mean modern art grounded in myth; it may mean involving multiple genres in pursuit of artistic expression; it may mean the incorporation of a theme, character, or scene from one of Wagner’s works into a novel, painting, or film.

The transformation of Wagner’s works and ideas into an artistic or philosophical approach began during Wagner’s own lifetime. One of Wagner’s earliest acolytes was the German philosopher and critic, Friedrich Nietzsche, who was an early exponent of Wagner’s music and philosophy. Although the two men ultimately had a falling out, Nietzsche’s continuing reflections on Wagner’s use of myth and story influenced some of Nietzsche’s best-known philosophical works. Nietzsche may also have been among the first to see the danger in the seductive power of Wagner’s works. In his late work, The Case of Wagner, Nietzsche recanted his earlier praise for Wagner, now characterizing his music as “decadent,” noting in particular its effect on German youth, saying of their response to Wagner that it “It was not with his music that Wagner conquered them, it was with the ‘idea’—it is the enigmatic character of his art, its playing hide-and-seek behind a hundred symbols, its polychromy of the ideal that leads and lures these youths to Wagner; it is Wagner’s genius for shaping clouds, his whirling, hurling, and twirling through the air, his everywhere and nowhere.”

One thing that is clear from the outset is that Wagner had an enormous impact on other artists, particularly writers. One of the strengths of Ross’s book, and one of the many features of the book that makes it worth reading, is the sheer number and range of artists and authors whom Ross convincingly shows Wagner influenced. The list is long and diverse. It includes the English novelist George Eliot; the novelist of the American prairie, Willa Cather; a host of modernist writers, including James Joyce, Marcel Proust, T.S. Eliot, Virginia Wolff; and even the German author of bourgeois decline, Thomas Mann. (Ross says of Mann this his “entire oeuvre is a kind of aftermath of Wagner.”)

Ross’s comprehensively approach finds deep marks of Wagner in some truly unexpected places, such as in W.E.B. Du Bois’s 1903 work The Souls of Black Folk, one of the founding texts of the African-American Civil Rights Movement. Du Bois, Ross writes, “took Wagnerian myth as a model for a heroic new African-American spirit, one that would make use of its own legends.” (It is probably important to note here that Du Bois spent two years studying at Fredrich Wilhelm University in Berlin.) Ross also shows that Theodor Herzl, the early prophet of Zionism, was a confirmed Wagner devotee. Herzl, Ross writes, looked to Tannhäuser to “fortify his Zionist vision.”

One interesting Wagnerian detour in Ross’s book is his exploration of the influence of Wagner on late 19th and early 20th century American urban architecture. A number of architects in the Chicago school – including in particular John Wellborn Root and Louis Sullivan — embraced Wagner and sought to embody in their work ancient values that were “rhythmic, deep, and eternal.” In an essay Root advocated an architectural aesthetic comparable to the nuances of musical language, in pursuit of the “complete unification of the arts for which Wagner labored.” Frank Lloyd Wright, one of Sullivan’s pupils, was to record, that Sullivan filled his studio with the strains of Wagner’s music. Similarly, architects in fin de Siècle Vienna sought to “translate Wagner’s idea of the total work of art” into a model for the future of the city itself. The artistic renegades within the Viennese Succession movement similarly sought to realize a “lived-in Gesamtkunswerk.”

Ross exhaustively documents the extent of Wagner’s artistic influence, but he also plumbs the depths of Wagner’s dark sides. Ross devotes a significant section of his book trying to understand Wagner’s vehement anti-Semitism. Professional jealousy bordering on paranoia was one source. Wagner apparently believed that Felix Mendelsohn and Giacomo Meyerbeer, Europe’s preeminent composers of Jewish descent, were “plotting to get him.” But notwithstanding these seemingly explanatory threads, Ross concludes that the ferocity of Wagner’s anti-Jewish rancor “welled up from deep in his psyche.” It culminated in Wagner’s 1850 essay, “Jewishness in Music,” written in language of “still shocking crudity.” Wagner initially published the essay anonymously, but in 1869 he republished it under his own name. His ruminations that tend toward an “as yet uncodified theory or ‘science’ of race” were to reach their most obscene manifestation in the “race” theories associated with Nazi culture.

The link drawn between Wagnerism and Nazism continues to cast a dark shadow over Wagner’s historical reputation. As early as 1939, commentators were asserting that Wagner was “perhaps the most important single fountainhead of Nazi ideology.” Hitler reportedly even claimed that an early youthful encounter with Wagner’s opera Rienzi “propelled him toward a career in politics.” Later historians later doubted the extent of Wagner’s influence; one modern historian wrote that “the composer’s influence on Hitler has often been exaggerated.” However, there is no doubt, as Ross writes, that “the cultural-political apparatus of the Nazi state drew liberally on Wagnerian mythology,” adapting Wagner’s mythological themes and symbols as party iconography. Wagner’s music featured prominently in the Nazi rallies at Nuremberg and other party events.  However, Wagner was not as popular with the masses as he was with Hitler, and Wagner’s prominence in the Nazi repertoire faded after the early years, especially because not all of Wagner’s legacy could easily be reconciled with Nazi ideology.

Since the end of World War II, Wagner’s reputation and cultural place has gone through several successive re-assessments. The question Wagner’s legacy faced after the war was whether he still had something important to say to a culture prepared to reject him on both aesthetic and political grounds. The straightforward answer is that his work continues to be performed (except notably in Israel), and to be incorporated into films and other art forms. Wagnerian themes have permeated some forms of cinema, including in particular such fantasy and sci-fi epics as The Lord of the Rings, Star Wars, and The Matrix, which Ross refers to as “updated Wagnerian tropes.” (The Darth Vader theme is a universally recognized use of a Wagnerian leitmotif.) The story of Wagnerism goes on.

Ross sums up the vast terrain he has covered by saying that “In the story of Wagner and Wagnerism, we see both the highest and lowest impulses of humanity entangled. It is the triumph of art over reality and the triumph of reality over art.” Of Wagner’s complex historical record, Ross notes that “To blame Wagner for the horrors committed in his wake is an inadequate response to historical complexity; to exonerate him is to ignore his insidious ramifications.” Upon inspection, the “cult of genius” that surrounded Wagner “comes undone,” and he becomes something “more unstable, fragile, and mutable.” Incomplete in himself, “he requires the most active and critical kind of listening.” Through his art, we may think we have caught a glimpse of some higher, more glimmering realm, but it is only a shadow; “the vision fades, the curtain falls, and we shuffle back in silence to the world as it is.”

I recommend this book for anyone who wants to confront long-held beliefs, to encounter new thoughts and new perspectives – and to learn something new. This book is an entire curriculum in art, music, and culture. Having now read the book twice, I am thoroughly convinced that it is literally impossible to talk about Western art and culture in the late 19th and early 20th century without taking Wagner into account. Ross also shows that Wagner’s influence continues to this day. Ross’s successful execution of his effort to understand and explain Wagner’s influence is an astonishing, even dazzling accomplishment.

All of that said, I must add that this book is not for everyone. Not everyone is going to want to travel with Ross to try to find Wagner in the work of the Pre-Raphaelites or the Symbolists. Though I found Ross’s extensive plot summarize of various works of literature fascinating, I can easily imagine that some readers might not.

However, if you are the kind of reader that is interesting in being educated while being entertained, then I cannot recommend this book highly enough for you. This book raises important and though-provoking questions, such as: can we separate the music from its creator? Is it possible to admire the work of a despicable person? Can an artistic legacy be separated from the uses to which the art has been put? And finally — what is the purpose of art: merely to entertain, to uplift, or to inspire, enflame, enrage? A lot of questions for one book to raise…

Sunday Arts: Wagnerism published first on http://simonconsultancypage.tumblr.com/