We are pleased to announce the publication of “Target Acquired: Promises and Pitfalls for Private Equity in an Era of Regulatory Scrutiny” in Preferred Returns, the quarterly newsletter of the Private Equity & Venture Capital Committee of the Business Law Section of the American Bar Association, authored by Tyler Young, Matt Zorn, and Alex Ades.
Drawing from our recent litigation experience, the article explores evolving regulatory and litigation risks facing private equity firms and their portfolio companies. The foundational principle of limited liability has traditionally shielded private equity firms from liability for the actions of their portfolio companies, however, recent cases, including antitrust challenges brought by the FTC and private plaintiffs, indicate that regulators and private litigants are increasingly testing the limits of these protections.
The authors detail how the courts dismissed all claims against one PE company, reaffirming established principles of corporate separateness and limited liability. The case study provides practical guidance for private equity firms on factors courts consider when assessing investor liability for portfolio company conduct, the risks associated with overlapping board membership, and the heightened regulatory focus on serial acquisitions and interlocking directorates.
Key takeaways include:
- The degree of ownership and control remains a decisive factor in potential liability.
- Courts continue to presume corporate separateness, even where dual-hatted directors are involved, unless there is clear evidence of actions taken for the parent’s benefit at the subsidiary’s expense.
- Regulatory scrutiny is likely to persist, particularly in cases involving majority ownership, active management, or board interlocks.
We invite you to read the full article for a deeper analysis of these trends and practical considerations for private equity firms navigating today’s regulatory landscape.