The CEO of a Chinese public company embezzled millions from his corporation while misleading investors with false statements and omissions. When the fraud and looting came to light, investors filed a federal securities lawsuit against the company, its CEO, and the company’s board of directors.
The company moved to dismiss the lawsuit, claiming that the actions of the CEO could not be imputed to the company because he and his accomplices acted out of their own self-interest and were adverse to the company. The District Court agreed and dismissed the lawsuit for lack of scienter or intent because the CEO’s fraud did not benefit the company. The Ninth Circuit Court of Appeal reversed, however, holding that the company can be liable even when the fraud did not benefit the company because it permitted the CEO to speak on its behalf and innocent shareholders relied on those statements.
[I]mputation is proper because Chan [the CEO] acted with apparent authority on behalf of the corporation, which placed him in a position of trust and confidence and controlled the level of oversight of his handling of the business.
In re ChinaCast Educ. Corp. Sec. Litig., No. 12-57232 (9th Cir. Oct. 23, 2015).
If you have questions about securities or stock fraud, contact Orange County civil attorney Kristopher Diulio at kdiulio@forddiulio.com or call the experienced attorneys at Ford & Diulio PC at (714)-384-5540.