I loaned $60K (in 2 stages) to someone (D) as an investment/loan to help their business, which is listed in our promissory note as a business entity incorporated in CA. The consideration was shares in this corporation, 65,000 (nominally valued at $1 each). D gave me a printed certificate (which really looks like a cheap document printout) claiming to represent (eg) 30,000 shares. After D failed to repay, I checked with the Secretary of State of CA and learned that the corporation is no longer valid (possibly D did not keep up with the filing requirements), and furthermore it's articles of incorporation only authorized up to 20,000 shares. Does this qualify as theft by trick or other form of larceny, such that I could use a threat of criminal prosecution as leverage to try to get paid?
Sounds like this might be a case. If the owner released shares without amendments to the articles of incorporation, thus diluting the value of your own shares, this would be a solid case for fraud and breach of various duties.
In law everything is in the details. You should talk to a business litigator in your area to really flesh out the details and do some research.
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Depending on the facts, yes. Could also be good case of fraud, misrepresentation, etc. Find a local business litigation attorney to help sort things out.
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Non-lawyers have no clue how to issue shares. Get a business litigator as soon as possible. Never threaten criminal prosecution. Just do it.
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10 lawyers agree
Threatening criminal prosecution is legally murky; however, it is best for you to just do it. Start with a police report, and then get a copy to share with the DA's office. One note of caution, though, is that both the police department and the DA's office are extremely understaffed right now, and non-violent crimes are given the lowest possible priority.
You need to consult with a business litigation lawyer as soon as you can. There are quite a few good ones in San Francisco, and my firm is right across the Bay Bridge.
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