Litwin v. Allen

Facing over $10 million owed on properties it couldn't finance through borrowing, Alleghany Corporation sold $10 million of its Missouri Pacific bonds to J.P. Morgan & Co. at par in November 1930, retaining a six-month option to repurchase them at that same price; Guaranty Trust Company committed to participate in the purchase, and its subsidiary Guaranty Company agreed to absorb the bonds if Alleghany didn't exercise its repurchase option. The bonds' value was already declining throughout 1930 - trading at 102 7/8 when Trust Company's board approved the deal, 98 5/8 when Guaranty Company's board approved its commitment, and just 86 high/81 low by the time the repurchase option expired in April 1931, at which point Guaranty Company took the bonds over at the original par price and booked them as an investment. Minority shareholders of Trust Company (plaintiffs) brought a derivative suit against the directors of both companies and J.P. Morgan (defendants) to hold them personally liable for the resulting losses.