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In 2023, the SEC charged Vidul Prakash, former CFO of smart windows company View, with “negligence-based fraud and violations of disclosure and books and records,” as CFO Brew previously reported. Prakash was ordered to pay civil penalties and, after the firm cooperated with the SEC, he was prohibited from serving as an officer or director for a company.
This lawsuit was unusual in that it named a CFO personally. In recent years, that’s only happened a handful of times. There were 24 cases where individual CFOs were sued by an array of plaintiffs in 2023, compared to 14 in 2022, according to Datarails’ CFO Lawsuit Tracker 2024.
The most frequent charge against CFOs in 2023 was breach of fiduciary duty. There were 10 such cases in 2023, up from three in 2022. The second-most frequent charge was fraud, which featured in nine cases in 2023, up from six in 2022.
Generally speaking, in the US, legal concepts like the business judgment rule and the “corporate veil” protect corporate officers against being personally held liable for actions they take on behalf of their companies. However, in some cases—especially those involving misconduct—courts may allow suits against individual officers to go forward.
Such cases may be on the rise, law professor and litigation attorney Jed Chedid, who compiled the CFO Lawsuit Tracker with Datarails, told CFO Brew. “What I am starting to see is a closer personal attack on the officers of the corporation itself,” he said. More plaintiffs are “trying to pierce the corporate veil and sue the corporate officer directly,” he said.
CFOs who follow proper procedures shouldn’t be too concerned about lawsuits, Chedid said. But they can still protect themselves by making sure their projections and timelines are conservative and by implementing and enforcing proper risk management procedures, he said. They should carefully vet their systems, experts, and people, he said.
CFOs should also be careful to avoid conflicts of interest. They’re more likely to “gain the benefit of those corporate protections” when it’s clear they’re acting on behalf of their companies and are not self-interested, he said.
In the event they are sued, CFOs should seek the advice of an attorney ASAP, Chedid said. “Step one, seek counsel,” the attorney said. “Step two, do what counsel tells you.”