Certified Legal Professional (CLP) Practice Exam

In the attorney's representation of the company being sold, why did the buyer allege fraud?

1. The company concealed assets during the sale

2. The company used an improper valuation standard

3. The company failed to disclose unfavorable contracts

4. The company made false statements to consumers

The correct answer is: The company used an improper valuation standard

The allegation of fraud in the context of a company's sale typically centers around misrepresentation or failure to disclose critical information that can affect the value or the decision-making of the buyer. The assertion that the company used an improper valuation standard is significant because it implies that the valuation presented to potential buyers did not accurately reflect the true financial state or worth of the company. This can be viewed as an attempt to manipulate the sale price, which can constitute fraud. In transactions, proper valuation is crucial, and using an improper method can lead to inflated values, misleading the buyer about what they are actually purchasing. If the buyer believes they have been led to make a decision based on faulty financial representations, this can result in claims of fraud. The other potential motives for alleging fraud relate more to transparency and disclosure failures than outright misrepresentation of value, which makes the use of an improper valuation standard particularly critical in this context.