Mis-statements in a Prospectus and Remedies

A mis-statement in a prospectus is a statement that is untrue or misleading. Mis-statements can be made intentionally or unintentionally.

Remedies for mis-statements in a prospectus

There are two main remedies for mis-statements in a prospectus:

  • Civil liability. A person who has suffered loss or damage as a result of a mis-statement in a prospectus can sue the company, the directors of the company, and any other person who is responsible for the mis-statement.
  • Criminal liability. A person who knowingly makes a mis-statement in a prospectus can be prosecuted and punished by imprisonment or fine.

Multiple choice questions (MCQs) on mis-statements in a prospectus and remedies

  1. Which of the following is not a remedy for mis-statements in a prospectus?
    • Civil liability
    • Criminal liability
    • Rescission of the contract
    • Damages
    • The answer is (c). Rescission of the contract is not a remedy for mis-statements in a prospectus. This is because the contract is not voidable on the grounds of misrepresentation.
  2. A person buys shares in a company based on a prospectus that contains a mis-statement. The person suffers a loss as a result of the mis-statement. What are the possible remedies available to the person?
    • The person can sue the company for damages.
    • The person can sue the directors of the company for damages.
    • The person can sue the expert who signed the prospectus for damages.
    • All of the above
    • The answer is (d). All of the above remedies are available to the person who has suffered loss as a result of a mis-statement in a prospectus.
  3. A company issues a prospectus that contains a mis-statement. The mis-statement is made by the company’s auditor. Is the auditor liable for the mis-statement?
    • Yes
    • No
    • Only if the auditor knew about the mis-statement
    • Only if the auditor was negligent in making the mis-statement
    • The answer is (b). The auditor is not liable for the mis-statement unless they knew about the mis-statement or were negligent in making the mis-statement.

Answers

  1. (c)
  2. (d)
  3. (b)