Author Question: The president of a company says that new products to be introduced are sure to double company ... (Read 109 times)

Ebrown · **on:** Jun 24, 2018

The president of a company says that new products to be introduced are sure to double company profits. Based on this, investors buy stock in the company, pushing up its price. The products flop, the company loses money, so the stock price falls. Investors are most likely to sue the president of the company under what theory provided by the securities law?
a. liability for mutual securities fraud b. liability for insider trading
c. liability for securities negligence d. liability for proxy fraud
e. none of the other choices

Question 2

Fraudulent Misrepresentation. Nosrat, a citizen of Iran, owned a hardware store with his brother-in-law, Edwin. Edwin induced Nosrat to sign a promissory note for 11,400, payable to a third party, telling Nosrat that the document was a credit application for the hardware store. Although Nosrat could read and write English, he failed to read the note or to notice that the document was clearly entitled PROMISSORY NOTE (SECURED) and Security Agreement. The money received from the third party in exchange for the note was spent by Edwin and others. When the third party sued for payment, Nosrat sought to void the note on the basis of Edwin's fraudulent inducement. Will Nosrat succeed in his attempt? Discuss.

Jody Vaughn · **Reply #1 on:** Jun 24, 2018

Answer to Question 1

e

Answer to Question 2

Fraudulent misrepresentation
No. The court held that Nosrat was liable on the note because with ordinary diligence he could have prevented the fraud from occurring. An examination of the document by Nosrat would have quickly revealed the true nature of the contract he was signing, and the fact that he was confident that Edwin was telling him the truth cannot excuse him from his negligence in signing a document did not read. Because there was no deceit on the part of the third party, and because Nosrat's reliance is based on the deceit of his brother-in-law, Nosrat cannot escape liability by claiming fraud.