A young stockbroker was rather overwhelmed by a flood of new clients. Assunta, o

Question

A young stockbroker was rather overwhelmed by a flood of new clients. Assunta, one of his clients, had purchased XYZ Corp. stock through the broker at a price of $35 per share. The price had gone down to $29 by the time Assunta telephoned the broker. Assunta told the broker that she wanted to sell the stock if it went below $30 and inquired as to the price. The broker did not check the price, but thinking it could not have fallen below the $30 threshold, simply reassured Assunta that it was still "in the low 30s." Marta, Assunta's cousin, also had purchased XYZ stock at $35 per share and made a similar call to the broker and received the same response. Marta, however, coincidentally saw the price on a stock ticker tape when she hung up and realized the broker had made an error. Both Assunta and Marta held the stock and did not sell. Later that same day, the stock price fell an additional $7 per share. Facing sizable losses, both Assunta and Martha decided to sue for fraud when Marta told Assunta of the broker's misstatement. Discuss the probable outcome of the lawsuits.

Explanation / Answer

The broker's reckless disregard for the truth constituted fruad in the case of Assurta,because it was a materail misstatement of fact that was relied upon causeing damages.

Marta, however will not be successful,because she did not rely on the misstatement and knew that it was false.

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