Insiders' M&A Paydays Fair Game For Del. Class Actions

By Liz Hoffman (April 3, 2013, 5:21 PM EDT) -- Venture capital, take heed: A Chancery Court decision this week will give entrepreneurs a big club to challenge preferred stock issuances that result in lopsided spoils from later sales.

In Carsanaro v. Bloodhound Technologies Inc., Vice Chancellor J. Travis Laster said stockholders could file class action — not just derivative — lawsuits against insiders for preferred stock issuances that dilute common shareholders. That opens the door for class actions and could better arm startup founders to challenge transactions that sideline them, said Curtis Alva of Holland & Knight LLP.

"Venture capital is the sweet spot of this decision," said Alva, who...

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