An investor claimed a company owner lied when he sold him 1% of his company by not disclosing that outstanding options diluted his interest to about one-half percent. Later, while the case was pending, the company was sold for about eight times the original purchase price. The question was whether the buyer could claim only the reduced, original value for the shares he did not get or the total sale price from the later sale. The court decided that upon proof of fraud, he could recover what he would have received had he been able to sell the additional stock he did not get; about $23,000,000.00.
Why This Is Important… The court here based its decision on the restatement of torts, a set of principles used in most states. This decision means that in a commercial fraud context, damages can be based on the profit expectation of the parties if they can be proven.
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