This initiative statute would limit civil actions against corporate boards of directors by shareholders who are alleging financial misconduct. Its stated aim is to reduce frivolous lawsuits against growing corporations. Background Securities are stocks, bonds, or other evidences of obligations to pay money or of rights to participate in earnings and distribution of corporate assets.
Stocks represent shares of ownership in a corporation or partnership.
Bonds are another form of financial investment, similar to loans. Securities fraud occurs when a seller of securities knowingly or recklessly makes fraudulent statements or omits critical facts in describing the offer. A shareholder derivative action is a lawsuit brought by the shareholders of a corporation on behalf of the corporation when they believe the corporation has been a victim of securities fraud carried out by its board of directors. The suit alleges that directors have benefited from the fraud, and that the corporation has refused to correct it despite shareholder demand to do so. Proceeds of any judgment against the directors go to the corporation.