3.7.1.3 Shareholders directly against directors

Sometimes shareholders have a direct claim against directors, such as in the Smith v. Van Gorkom case,1 where the CEO/chairman ("imperial CEO") had sold off the shares of the company at what shareholders later argued was an unduly low price. This decision had been rubber-stamped by the board in a twohour meeting based on a 20-minute oral presentation by the CEO without producing copies of any agreements or documents. The board gave its approval without any investigation, thereby causing damage to shareholders, as the court decided.

Most lawsuits brought by shareholders against the company (issuer) and directors and advisors are securities cases under Section 11 of the Securities Act 1933 and also under Section 10(b) of the Securities Exchange Act of 1934 for misleading statements. This is described in more detail in 3.7.3.5.