Fraud Claims Against the Corporation’s Officers or Majority Shareholders

Texas has special laws governing fraud in a stock transaction. Section 27 of the Texas Business & Commerce Code gives the victims of such fraud specific remedies, including the recovery of their attorneys’ fees.

Fraud occurs when, during the transaction to buy or sell stock, the other party makes a false statement of fact or a false promise, with the purpose of inducing the purchaser to enter into the transaction.  To succeed on a fraud claim, you must also show that you relied upon the false statement or promise by entering into the transaction. If successful, you can elect to rescind the transaction and get your money back, or you can recover the difference between the value of the stock you received and the value that the stock would have had if the statements or promises were not false.  Punitive damages may also be recovered if you can prove, by clear and convincing evidence, that the defendant knew that the statement or promise was false at the time it was made.

Fraud claims can also exist even if the false statement was made by someone other than the seller of the stock, provided that the seller benefits from the false statement and fails to disclose that the representation was false.  Such “third-party fraud” claims can involve statements made by bankers, creditors of the corporation, business brokers, or the company’s customers or suppliers.

In the context of closely-held corporations, the parties to a stock transaction often rely on the representations and promises of the other party, because the parties know and trust each other.  If these representations and promises prove to be false, contact the Dallas Fraud Lawyers at Powers Taylor LLP.  Powers Taylor can help you evaluate the key questions in any fraud case.  We have handled cases involving fraudulent statements and promises of all types, including promises related to the availability of future funding, false assurances regarding the stability of the corporation’s customer base, and fraudulent representation regarding the corporation’s prospects for expansion of its business.