A public company in Georgia may find itself the focus of shareholder litigation in a number of circumstances. FindLaw notes that the Securities and Exchange Act Rule 10(b) provides the Securities and Exchange Commission with considerable authority to regulate the securities market and prevent fraud.
According to the American Bar Association, cases claiming a violation of the Securities Exchange Act may be triggered by shareholders who are unhappy with a sudden drop in the price of their stocks. However, there are a number of elements that a plaintiff must prove in order to win a case against a company based on a claim of securities fraud:
- The company omitted or misstated a fact that is material (meaning that it is likely to be considered important to a shareholder when making an investment decision)
- The company intended to deceive, defraud or manipulate through the omission or misstatement
- The plaintiff relied on and made an action directly connected to the company’s omission or misrepresentation
- As a result of the action, the plaintiff suffered an economic loss
Only a shareholder who purchased or sold a security can bring a lawsuit of this nature. Someone who decided not to buy or sell based on the information, even if it was an omission or misstatement, cannot sue the company.
In court, proving that the company’s misstatement or omission is important may be difficult for plaintiffs, as well as proving that the company expressly intended to defraud or deceive shareholders. Proving that the company was negligent is not enough, but if the plaintiff can show that the company acted recklessly, this may prompt the court to hold the company liable.