Issue No. 2 — August 17, 2026

Lead Matter

The Cloudflare recapitalization challenges (Del. Ch., C.A. No. 2026-0734-JTL and related actions)

Cloudflare and co-founders Matthew Prince and Michelle Zatlyn face Delaware Chancery litigation over a proposed recapitalization that, per the company's proxy, would reconstitute each existing share into one share of its current class plus one share of a new non-voting Class C. Stockholders approved the charter proposals on June 30. By August 5, Cloudflare had disclosed eight complaints — seven consolidated into a fiduciary action, and one raising a separate charter-vote claim — and the Court of Chancery's calendar listed an August 12 summary-judgment hearing in Mumme v. Cloudflare, the lead action, before Vice Chancellor Laster. The plaintiffs allege the plan is not entirely fair because it would let the founders sell newly issued Class C shares — approximately $3.6 billion, per their filings — without any effect on their voting control; the company and its board have stated that the claims are without merit and that the changes comply with applicable law. The claims are contested and the litigation has advanced beyond initial pleadings; no decision on the merits had issued. Multi-class structures are the public-market descendants of venture-era founder-control arrangements, and process choices of this kind — committee composition, conditioning on minority approval — have mattered as much as the economics in prior recapitalization litigation.

On The Docket

Grabski v. Andreessen (Coinbase) — SLC termination motion denied (Del. Ch., C.A. No. 2023-0464-KSJM)

On January 30, 2026, Chancellor McCormick declined to terminate a derivative suit alleging Coinbase insiders sold roughly $2.9 billion in the 2021 direct listing while holding material nonpublic information — allegations that remain untested. The court found material disputes over one special litigation committee member's independence, based on cumulative co-investment ties to Andreessen Horowitz, including participation in at least fifty financing rounds alongside the firm since 2019; it emphasized that no one questioned the member's good faith. The litigation continues after denial of the termination motion. In ecosystems where repeat co-investment is the norm, the pool of directors with no such history may be small.

SEC v. Gao and Shima Capital — track record in fund marketing (N.D. Cal., No. 3:25-cv-10200-VC)

The SEC alleges a crypto venture fund raised over $158 million from 349 investors using a pitch deck that materially overstated the founder's prior track record — including, as alleged, a 90x return that was actually 2.8x — and that, as alleged, the founder told investors the discrepancies were “clerical errors.” The court entered a consent final judgment as to Shima Capital on February 24, 2026, and the SEC revoked the firm's adviser registration on March 4; as to Gao, the court entered a stipulated preliminary injunction on February 24, and his proposed final judgment — disgorgement of $3,923,757.33 plus $304,622.67 in prejudgment interest, subject to offset for any restitution ordered in the parallel criminal case, with further relief reserved — had not been shown entered. The underlying conduct remains alleged. Track-record attribution in emerging-manager fundraising is an area where market practice and regulatory expectations are still converging.

Ruling In Focus

Guilbeau v. Footprint — dilutive preferred rounds and sponsor exposure (Del. Ch. 2026)

A recent Chancery ruling largely sustained fiduciary claims arising from a dilutive preferred financing: a 26.4 percent block was not, at the pleading stage, a controller, and the transaction-specific controller claim was dismissed; contractually permitted but undisclosed governance-agreement amendments could still support an unfair-dealing inference (a companion ruling rejected contract claims on the same amendments); and, on the alleged agency and participation facts, a board designee's knowledge could be imputed to the affiliated fund for aiding-and-abetting purposes. A motion-to-dismiss ruling — claims held reasonably conceivable, not proven. The decision separates two questions inside-round planning often merges: whether an action is contractually permitted, and how the manner of taking it reads under fiduciary review.

Doctrine Watch

The Delaware framework for dual-class recapitalizations

The backdrop to this week's lead: in the NRG Yield litigation (Del. Ch. 2017), entire fairness presumptively applied to a recapitalization conferring a unique benefit on the controller — even though the new shares were distributed pro rata — but the court held that conditioning the deal on an independent committee and a majority-of-the-minority vote restored business judgment review, and dismissed the fiduciary claims with prejudice at the pleading stage. These cases are accordingly litigated over process architecture as much as economics. Delaware's 2025 amendments to Section 144 now overlay that case law: for covered controller transactions other than going-private transactions, the statute provides alternative routes through a qualifying committee, a qualifying disinterested-stockholder vote, or a showing of fairness, so the 2017 pair of approvals is not a universal requirement today. Next week's issue examines the amendments.

Also Tracking

Cloudflare — decision on the plaintiffs' motion, pending after the August 12 hearing • ATP — implementation of the July 30 officeholder-recognition order and the funding dispute (No. 25-12177-LSS; Issue No. 1) • Marshall Wace v. Lukka — the consent-rights action (Issue No. 1) • SEC v. Gao — further proceedings concerning Gao's proposed final relief.