If you’ve ever watched the reality TV show, “Shark Tank,” you know that fishing for investment dollars can be tough. It requires a unique sales pitch. And investors who decide to become shareholders expect the entrepreneur looking for help to provide the best information possible.
Money sources want to fully understand their risk and the gain they might realize. If they make a financial commitment and then decide they’ve had the wool pulled over their eyes by company officers, it may spark shareholder disputes or even more serious claims of fraud. Negotiations, started swiftly, may stave off court action, but business litigation can’t be ruled out. Consulting with a skilled attorney is critical to finding the most effective strategy to deal with this eventuality.
Laws related to business fraud and specifically securities fraud, vary from state to state. In North Carolina, one relevant code states that it is illegal for a person selling securities to make false statements about material matters or withhold important material information. Criminal charges could be brought in some circumstances. Shy of that, potentially damaging civil action is possible.
Just such action is underway now in Texas. At least two shareholder suits are open against a company that supplies highway guardrails to states around the country. The suits allege that Dallas-based Trinity Industries Inc. failed to reveal that it had changed the design of one of its systems without government review. At least nine deaths have been linked to apparent problems with the modified system.
Plaintiffs say the company was under investigation by federal authorities for several years but never revealed that to investors. They say the effect was that liabilities were understated, financial projections were overstated and the stock price was artificially inflated.
When news of the probe got out earlier this year, the stock price took a dive and the shareholder plaintiffs now seek to recover money they say they lost.