Assume a securities lawyer has just received a phone call from her client, the Chief Financial Officer (CFO) of XYZ Corporation, and informed that a securities lawsuit may be filed against her client by a group of the company's shareholders. XYZ's share price recently dropped from $40 to $4 per share after the company announced that it had to restate its quarterly results. The shareholders also learned that the CFOs compensation package ($20 million) is tied to the attainment of a $40 common stock share price. Although her client is innocent, the attorney believes the shareholders will view this as a case of securities fraud and file the suit against the CFO, alleging that due to the large compensation, the client stood to gain from reaching the share price, and with the client's ability
to influence the company's revenue, the CFO possessed the motive and opportunity to defraud XYZ's investors.Why might the facts of this case lead the attorney to conclude that a lawsuit against her client is imminent? How might the attorney assert a valid "good faith" defense?
What will be an ideal response?
The attorney probably believes the allegations may create a strong inference that the CFO acted with the required state of mind, or scienter, which is a mental state that reflects a defendant's intent to deceive, manipulate, or defraud. Scienter is a required element of a private securities fraud claim.
The Private Securities Litigation Reform Act strengthened the pleading standards for fraud cases by requiring the plaintiff to state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind. The courts look at whether the defendant's motive and opportunity to commit fraud reflect evidence of conscious misbehavior or recklessness.
A legal principle that makes officers, directors, managers, and other agents of a corporation immune from liability is when their decisions are made in good faith. Under the business judgment rule, the officers and directors of a corporation are immune from liability to the corporation for losses incurred in corporate transactions within their authority, so long as the transactions are made in good faith and with reasonable skill and prudence.
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Brant Ranger, Paula Potts and Matthew Lane are all tax lawyers and partners in Ranger Potts & Lane LLP. They practiced together and were successful for many years before the partnership ran into difficulties
Lane was retained by Phillip Schooner, a wealthy client. Lane acted negligently for Schooner in several income tax transactions which breached the Income Tax Act and caused millions of dollars in losses to Schooner. Schooner brought a legal action over this. Which of the followings statements is TRUE? Schooner can claim against A) the firm's assets B) none of the partners' personal assets C) the firm's assets and the personal assets of Lane only D) the firm's assets and all of the partners' personal assets E) only the insurance provider for the firm
Limited liability companies (LLCs) are governed by state LLC statutes.
Answer the following statement true (T) or false (F)
You have just been hired as the new Assistant Human Resources Manager at your firm, having worked your way up from the factory floor to the administrative suite. During your briefing for the new job, you are told that the firm has learned that its employees are attempting to unionize, a move which the firm has vowed to fight. As part of that effort, your boss, the HR Manager, has asked you to
privately talk to some of your former co-workers on the factory floor to see what their thinking is, to learn about how many are in favor of unionizing, who, specifically, is supporting it, and what might make them change their minds. Among the things they want to know is what would work better – threats of reprisals against those supporting a union, or promises of benefits to those who oppose it. You are eager to do well at your new job, but you see some problems with these requests. Of the following choices, what should you do? a. do as they ask; none of it is illegal b. tell them you can't do what they ask because it is illegal c. tell them you would be glad to talk informally with your former co-workers to find out their attitudes about unionization and why this has come up, but that speaking about reprisals and benefits would be an unfair labor practice