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State v. Stockton5/19/1998
efendants knew, or in the exercise of proper care, should have known that the representations . . . were materially misleading
and that had the Department been aware of these facts, "it would not have allowed the transaction to go forward."
On 27 December 1990, the Department advanced additional questions regarding the loan. Taylor replied with a letter "purport to attach a summary of the terms of the Series E preferred stock." However, asserted plaintiff,
the summary did not disclose that ILA would lend the investor the money used to purchase the preferred stock, or that the investment would not take place unless an additional $1.9 million loan occurred.
On or about 31 December 1990, Petree is alleged to have prepared an investment letter to be signed by Googe with respect to the issuance of $2.5 million of preferred stock by FRFC to Googe. Plaintiff's complaint maintained the letter represented
that the purchaser of the preferred stock had no present or contemplated need to dispose of any portion of the stock to satisfy any existing or contemplated undertaking, need or indebtedness.
However, the complaint continued,
n preparing the investment letter to be signed by John Googe, the Defendants knew, or in the exercise of due care should have known, that an integral part of the deal was the need of John Googe to dispose of the preferred stock in order to repay the $2.5 million loan from ILA.
Further,
s of January 3, 1991, Petree Stockton was aware of December 3, 1990 letter of [accounting firm] Ernst & Young, which indicated that had a negative net worth, and that the net worth of SEBS was less than the amount of the loan made by ILA.
On 3 January 1991, ILA transferred $2.5 million to SEBS, which in turn transferred $2.5 million by wire to FRFC. Also on 3 January 1991, ILA loaned $1.9 million to ALA. FRFC used $1.6 million of the sum received to pay Trust Company. In addition, FRFC sent $77,345.26 to a company controlled by Peterson and $636,785 to ILA. Googe, SEBS and ALA subsequently defaulted on the loans made by ILA, causing ILA damages in excess of $10,000.
In March and December 1991, the Department forwarded inquiries to ILA regarding matters including issuance of preferred stock by FRFC to SEBS. Taylor assisted officers of ILA in responding, and, plaintiff alleged,
knew or should have known that the responses were misleading and would result in a failure to disclose the true financial situation of ILA . . . .
According to the complaint, one response indicated "no shareholder or officer of FRFC or ILA benefitted personally in any way from the ILA loan or the SEBS loan."
On 2 April 1993, an order of liquidation was entered against ILA by the Superior Court of Wake County pursuant to Chapter 58, Article 30, of the North Carolina General Statutes, and Commissioner Long was appointed liquidator. Empowered by N.C.G.S. ยงยง 58-30-120(12) and (13) to prosecute actions on behalf of ILA, the State through Commissioner Long instituted the instant action against Petree, Iseman, Taylor and Hedberg. It appears Iseman and Hedberg ended their association with Petree prior to the filing of plaintiff's complaint.
Plaintiff alleged causes of action for negligence, constructive fraud, and facilitating fraud against all defendants and a claim for breach of the duty of loyalty against Iseman. By stipulation, dismissals were filed as to all defendants but Petree and Iseman (defendants). The latter moved to dismiss plaintiff's complaint under N.C.R. Civ. P. 12(b)(6) (Rule 12(b)(6)) for failure to state a claim upon w
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