M&A Advisor Misconduct: A Wrong Without a Remedy?

Abstract

Merger and acquisition (M&A) transactions are among the most high profile of corporate transactions. They are also among the most contentious, with around eighty percent of all completed deals litigated in recent years. And yet investment banks—essential advisors on these deals—have generally succeeded spectacularly in avoiding liability, an anomaly considering the routine nature of deal litigation and the frequency with which they face lawsuits in their other activities. This article examines this anomaly, explaining the doctrinal and practical reasons why it arises. In doing so, it puts in context aiding and abetting liability, a recently-successful shareholder strategy to bring M&A advisors to heel. The article shows how this litigation strategy—a direct action by shareholders alleging secondary liability against the corporation's M&A advisor based on the underlying wrong of directors—may delicately side-step the traditional obstacles. This strategy has succeeded on occasion, provoking widespread alarm in the investment banking community—but the strategy marks only a modest increase in liability risk for M&A advisors. In fact, the liability framework for M&A advisors remains piecemeal and unlikely to be effective in deterring M&A advisor misconduct. The article concludes by examining reform options, arguing in favor of greater industry self- regulation.