Who's Paying the Arsonist?

When I recently bought home insurance, you may not be surprised to find out I didn’t check the box to include coverage for the legal defense fees of any arsonist that might burn it down. Well, apparently JPMorgan did…

When JPM acquired Frank, a ‘streamlined FAFSA support service,’ it included a term in its merger agreement providing for legal expenses for executives.

But, here’s the crazy part: that included executives that may be later accused of fraud.

Well, Frank’s customer base turned out to be ‘synthetically inflated, and JPMorgan was stuck footing the bill for Frank’s CEO and its Chief Growth Officer. That seemingly benign indemnification term meant JPM covered the executives’ criminal defense, 𝗮𝘀 𝘄𝗲𝗹𝗹 𝗮𝘀 𝘁𝗵𝗲 𝗰𝗶𝘃𝗶𝗹 𝘀𝘂𝗶𝘁 𝗝𝗣𝗠𝗼𝗿𝗴𝗮𝗻 𝗳𝗶𝗹𝗲𝗱 𝗮𝗴𝗮𝗶𝗻𝘀𝘁 𝘁𝗵𝗲𝗺.

The tab:

• $115M in legal expenses (nearly 2/3 of the $175M JPM paid to acquire Frank)
• 19 lawyers for the CEO
• 16 lawyers for the Chief Growth OfficerAnd

𝗝𝗣𝗠𝗼𝗿𝗴𝗮𝗻 𝗽𝗮𝗶𝗱 𝗶𝘁 𝗮𝗹𝗹.

‍Noetica‘s data indicates that these indemnification terms are pervasive in M&A deals and, as a result, corporate indemnification costs have exploded in recent years. What was once routine protection has become a potential liability worth tens of millions—costs that remain invisible until cases like this surface.

So what does this mean for you? Don’t just check the box. Ask how often these terms come up in the market and who it’ll protect when everything goes wrong. The last thing you want to do is rebuild your house and pay the arsonist’s bills.