Banks Targeted in Multibillion-Dollar Buyout Deal Lawsuits

The recent overhaul of Delaware law has left financial advisers vulnerable to lawsuits over their roles in multibillion-dollar buyout deals. JPMorgan Chase & Co and Morgan Stanley are among banks facing shareholder suits alleging they helped steer sales of public companies to private equity firms with which they have business relationships.

Since the changes to the Delaware law passed in March 2022, at least five cases have been brought against financial advisers, with more expected. The plaintiffs claim that banks like JPMorgan and Morgan Stanley knew about the breaches of fiduciary duty by company directors but failed to disclose this information to the public.

JPMorgan and Morgan Stanley have denied any wrongdoing in their court filings, saying they helped companies run a fair process and properly disclosed business ties. However, some judges are now questioning whether banks would be held liable for assisting in breaches of fiduciary duty, as demonstrated by a recent ruling against Goldman Sachs Group Inc.

The threat of litigation is prompting banks to be more careful in their dealings with private equity firms, according to Gail Weinstein, a corporate attorney at Fried, Frank, Harris Shriver & Jacobson. This may lead to more focus on disclosing conflicts and providing context for fees received by financial advisers.