The Accidental Fraudster

Entreprenuers Are Often Sued For Fraud Because Their Investment Offerings Are Not Written By Lawyers

Unscrupulous individuals have always been willing to use deceptive tactics to improve their bottom line. Bernard Madoff wasn’t the first or the last big time crook. We have successfully prosecuted and defended indviduals,  businesses and government entities in cases arising out of investment schemes, art forgeries, contract fraud and criminal conduct in state and federal court for 21 years.

On July 7,2011 Mr. Gentry won $438,000.00 in a fraud case stemming from a contract dispute. ( Case  No.NC 054938 DNI-Allegre Foods,Inc. v. Allegre Foods,Inc. ) In August of 2011 Mr. Gentry successfully settled a fraud case in which he represented the defendant arising out of a contract dispute for low six figures even though the claimant alleged millions in damages. 

On October 6, 2010 Mr.  Gentry won a jury verdict of over three million dollars on behalf of the City of Compton.  Read about the case here.  Read the LA Times article about the case here.  

When business deals go bad claims of  fraud and deceit are sometimes included in breach of contract actions.  This is often the case in disputes between partners or business co-owners.  If your business has been the victim of fraud or if you have been falsely accused of committing civil or criminal fraud, we can help. Call 800486 6814 for a free consultation.  

Many entreprenuers inadvertently find themselves to be defendants in fraud actions brought by disgruntled investors.  Invariably these fraud lawsuits could have been avoided had the business entreprenuer consulted with a lawyer in preparing his investment offerings.  By being too cheap to pay for a proper contract, the entreprenuers face potentially disasterous fraud lawsuits that usually allege the entreprenuer mislead the other party as to the facts upon which the investor based his decision to invest. ( “But, I am not too cheap,  I am too poor.  I can’t afford a lawyer to write my deals.”   Okay, read on and see what you need to put in your offerings.)

Often the entreprenuer will use partnership language indicating that he or she and the potential investor will each invest X amount of dollars,  when what the entreprenuer means is that he has already invested what he considers X amount of dollars (or a different amount plus his efforts or sweat equity) and the entreprenuer is willing to sell an interest in the venture for X amount of dollars.  The key to avoiding fraud lawsuits is to be transparent and honest about what you are offering. It’s perfectly fine to say, “Look I have worked my butt off to get this restaurant going.  I designed it and caused it to be built.  I have equipped it and I am running it. And I think a 25% stake in it is worth X dollars and that’s what I am willing to sell.”

The language of the agreement has to be genuine and clear,  or the results can be catastrophic for the entreprenuer.  Taking the example above let’s suppose the entreprenuer writes his own partnership agreement (or buys one on the internet–same thing–they both stink) stating he will invest X and the investor will invest X.  The investor gives his money to the entreprenuer and sometime later a dispute arises. 

Instead of a straight forward contract action or an accounting action*  the investor can claim he was duped into the investment and that he wouldn’t have invested had he known the entreprenuer did not simultaneously invest the same amount.  A fraud action exposes the entreprenuer to potential punitive damages which could result in the investor getting all his money back plus more, maybe A LOT more.

The moral is it’s better to consult with an attorney before you offer an investment opportunity to potential investors and it’s critical that your communications and your agreement are honest and clear.  

*(An accounting action refers to an action, usually brought in equity, to secure a formal statement of account from one partner to others in order to obtain a judicial determination of the rights of the parties in a shared asset. If one partner feels another has been diverting funds or otherwise cheating him or her, he or she may bring an action for an accounting and ask for the appointment of a temporary receiver.  1 Am. Jur. 2d, Accounting §44. )

Beverly Hills Business Attorney Galen Gentry can help you with lawsuits and create protection for your assets and your business. Whether yours is a  start up or a going concern we can help minimize lawsuit exposure, draft employee contracts,buy-sell agreements, and incorporate your business. With 21 years of experience and the highest rating for legal skills and ethical conduct from avvo.com and martindale.com. Galen can work with you to avoid costly legal problems through proper planning. Call 800 486 6814 for a free, no obligation consultation. Serving clients in Southern California including Los Angeles, Beverly Hills, Santa Monica, Hollywood, The San Fernando Valley, Ventura County, Orange County and Long Beach.


Recent Posts