Private Equity/Venture Services

The Indiana Supreme Court, in November 2007, decided a case which could impose significant new responsibilities on corporate directors.  In Lean v. Reed, the court found a director of a Canadian corporation personally liable as a matter of law (i.e., without trial) for violations of the Indiana securities laws by the corporation. While this in itself is not groundbreaking, the facts underlying the case are rather startling.

This ruling has emphasized that directors and officers can be personally liable for a corporation's violations of the Indiana securities laws (and the similar securities laws of other states) under some circumstances. A director could have a defense against personal liability if the director did not know, and in the exercise of "reasonable care" could not have known, of the facts giving rise to the violation. In Lean v. Reed, the court found that the elected director had per se failed to use reasonable care because he assumed, without inquiry, that management had taken the steps required to comply with the Indiana securities laws in connection with a share exchange transaction approved at his first board meeting.