[Vineyard Development] A community group in Montana wanted to revitalize the area and held a meeting urging residents to invest in local businesses. After the meeting, Mai and Trent, who own Valley Vineyard, decide to expand by adding a spa and first-class restaurant to the property to attract tourists. They plan to raise capital for the vineyard development by issuing securities to local investors. All of Valley Vineyard's property and assets are in Montana and their wine sales are about 85% to stores, consumers, or distributors within the state. Once the spa and restaurant are running, they would like to use their profits to open a small wine-bar in Florida.
-DotCom, Inc., told an investor that it had hired an investment firm to take the company public. However, DotCom had not in fact hired an investment firm and instead went bankrupt a year after the investor's purchase of significant shares. When the investor sues, DotCom claims that its prospectus includes the cautionary statements required by law, and thus cannot be held liable under the safe harbor provision of the Private Securities Litigation Reform Act. Would DotCom likely be held liable for the investor's loss?

Question

Quizplus · Accepted Answer

The cautionary statements in a prospectus are designed to protect against liability for forward-looking statements that may not come to fruition, not to shield a company from liability for misrepresentations or false statements about current or past facts, such as falsely claiming to have hired an investment firm.

[Vineyard Development] a Community Group in Montana Wanted to Revitalize