Fraud and Misrepresentation Lawyers in The Woodlands

Serving Clients Throughout Texas

Before we talk about Fraud and Misrepresentation, we need to talk about the Hopkins Centrich litigation philosophy:

When you have a serious legal issue that seems destined for a lawsuit, there is one thing you need to hear from your attorneys: “We will tell you the truth even if it’s unpleasant.”

That’s hard for a lot of lawyers to do because the last thing a client wants to hear is, “You don’t have a case,” “It’s time to pull the plug and walk away,” or “It’s not worth the expense just to prove you’re right.”

You need to know because you need to do whatever is best for your business. And to do that you need straight facts.

Hopkins Centrich PLLC gives you the facts... along with cutting-edge, high-quality, creative legal solutions to businesses in The Woodlands and beyond.

Fraud and Misrepresentation and Business Law

It’s an unfortunate fact of business life that sometimes the majority owners of a closely held company do not act in the company's or shareholders' best interest. Sometimes this is manifested by a pattern of fraud and misrepresentation.

Here are some key considerations regarding minority shareholder rights and fraud or misrepresentation in a closely held corporation:

• Fiduciary duty - Majority shareholders, directors, and officers owe a fiduciary duty to the minority shareholders and the corporation. This includes a duty to provide truthful, accurate information.
• Fraudulent statements - Intentionally providing false or misleading information about the company's finances, operations, or projections could constitute fraud.
• Reliance - Minority shareholders may have a claim if they relied on fraudulent statements and suffered harm as a result.
• Misstated financials - Issuing false financial statements misrepresenting the company's assets, liabilities, revenues, or expenses could be grounds for a lawsuit.
• Obligation to disclose - Majority shareholders have an affirmative duty to disclose all material facts, not just avoid making false statements.
• Share value - Misstatements that falsely inflate share value could induce minority shareholders to sell their shares too cheaply.
• Self-dealing - Failure to disclose self-interested transactions with the company could be constructive fraud.
• Derivative lawsuit - If fraud harms the corporation, a derivative claim may be brought on behalf of the company.
• Damages - The minority shareholders may recover damages for losses suffered due to reliance on fraudulent or negligent misrepresentations.
• Rescission - Shareholders may have grounds to rescind or undo any contracts entered into based on false statements.

The Key Elements of Fraud and Misrepresentation

There are any number of ways fraud and misrepresentation can occur in any business organization. Here are some examples:

• Overstating revenue and assets - Inflating sales numbers, accounts receivable, inventory valuations, or other assets to make the company appear more profitable.
• Understating liabilities and expenses - Not properly recording or disclosing expenses, loans, lawsuits, losses, or other liabilities.
• Fake customers and invoices - Creating fictitious customers, invoices, and documentation for sales that never occurred.
• Misstating financial metrics - Manipulating metrics like EBITDA, margins, growth rates, etc. through improper accounting.
• Concealing self-dealing - Not disclosing conflicts of interest or related party transactions that benefit insiders.
• Misappropriation of assets - Embezzling funds or assets and falsifying records to conceal the theft.
• False projections - Providing unrealistic, exaggerated earnings and revenue projections.
• Misleading statement in shareholder communications - Making false or incomplete claims in shareholder meeting minutes, annual reports, notices, etc.
• Lying about company prospects - Making rosy claims about growth opportunities or pending deals that aren't accurate.

What these all have in common are: Intentional deceit, reckless disregard for the truth, and gross negligence. Each of them potentially opens a closely held company's directors, officers, or majority shareholders to liability for fraud and misrepresentation.