TQ 3.1: In the Citigroup case, shareholders challenged the business decision to continue to operate in the subprime mortgage market after there was evidence that real estate investments might decline in value. Did Citigroup shareholders allege that the directors made a poor business decision or did they allege that directors failed to take appropriate steps to monitor risks related to the subprime mortgages issued and related real‐estate products? What is the difference between making a poor business decision and the failure to monitor risks? What action did shareholders argue that the board and executives should have taken to reduce Citigroup’s risk exposure in the subprime mortgage market?
TQ 3.2: In Stone v. Ritter, what standard did the court adopt for evaluating whether directors breached their fiduciary duties to monitor a corporation’s compliance program? How did the court’s application of this standard compare with the court’s approach in the Citigroup case?
TQ 3.3: Did the Citigroup court agree that the plaintiffs had established evidence of red flags? If the plaintiffs’ evidence did not establish that the directors knew or should have known about excessive risk‐taking activities, what type of evidence would have constituted a “red flag”?
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