Several investors invested in a company based on the optimistic projections of the 100% shareholder of the company, who also served as the director and CEO, regarding the project's success and the security of their funds. Eventually, the company collapsed and the investment was lost. Therefore, they demanded compensation both from the shareholder of the company and the middleman who connected them.
The Court accepted the claim and held that the shareholder had made a negligent misrepresentation, but dismissed the claim against the middleman. A shareholder who raises funds from investors may be held personally liable if he provides misleading information, fail to disclose material facts, breach his duty of care, if there was reasonable reliance and if actual damage was caused. Here, the shareholder had concealed significant project failures and presented misleading forecasts. The investors relied on this information and suffered losses. Therefore, the shareholder was ordered to reimburse the investors for their investment. However, a middleman is not obligated to investigate all the intricacies of the company he proposes, and he is not supposed to act as a "detective or private investigator" if he can assume that the company will provide true information. A person who advises on an investment can fulfill his obligation by presenting the person who has the broadest knowledge of the investment – the company's CEO himself. Therefore, the claim against the middleman was dismissed.