Using Disclosure Processes to Defend Securities Fraud Cases

This article by Sidley partners John Skakun, Heather Sultanian, and associate Patrick Musgrave examines an emerging defense strategy in securities fraud litigation that allows companies to rely on the strength of their disclosure review process, rather than the substance of legal advice, to rebut allegations of fraudulent intent (scienter). It explains how courts are increasingly distinguishing between an "involvement-of-counsel" defense, which highlights attorneys' participation in a company's disclosure process without waiving attorney-client privilege, and a traditional "advice-of-counsel" defense, which relies on legal advice itself and typically requires a privilege waiver. The authors analyze recent court decisions endorsing this process-based approach and offer practical guidance for companies seeking to use robust disclosure controls as evidence of good faith while preserving privileged communications.