What are my rights against a seller of a business that intentionally misrepresented earnings?

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What are my rights against a seller of a business that intentionally misrepresented earnings?

Bought a medical practice whose earning was misrepresented because 40% of its revenue reported to IRS was based on illegitimate practice. The government health insurance agency considers this part of the practice to be fraudulent. The new owner cannot run the business legitimately. Should the new owner seek compensation, report the fraudulent to the government, or ask the seller to take back the businessfor a full refund. Should I speak with a business law/litigation attorney? In Kenton County, KY.

Asked on October 12, 2010 under Business Law, Kentucky

Answers:

S.L,. Member, California Bar / FreeAdvice Contributing Attorney

Answered 11 years ago | Contributor

You can sue the seller for fraud.  Fraud is misrepresentation of a material fact made with knowledge of its falsity and with the intent to induce your reliance.  You justifiably relied to your detriment.  The seller's misrepresentation of income was made with  knowledge of its falsity and with the intent to induce your reliance in order for you to purchase the business.

Your damages (the amount you are seeking to recover in your lawsuit) would be either your out-of-pocket loss or the benefit of the bargain.  Out-of-pocket loss is the amount you lost in purchasing the business including any incidental expenses you incurred.  Benefit of the bargain is the difference between what you paid and what you should have paid for the business if you had known the actual income of the medical practice.

Fraud is both civil and criminal.  In addition to your lawsuit in the civil case, you could report the fraud to the government and the government could pursue criminal prosecution of the seller and others who were involved in illegal activities generating 40% of the income.

It would be advisable to speak with a business law attorney.

S.L,. Member, California Bar / FreeAdvice Contributing Attorney

Answered 11 years ago | Contributor

You can sue the seller for fraud.  Fraud is misrepresentation of a material fact made with knowledge of its falsity and with the intent to induce your reliance.  You justifiably relied to your detriment.  The seller's misrepresentation of income was made with  knowledge of its falsity and with the intent to induce your reliance in order for you to purchase the business.

Your damages (the amount you are seeking to recover in your lawsuit) would be either your out-of-pocket loss or the benefit of the bargain.  Out-of-pocket loss is the amount you lost in purchasing the business including any incidental expenses you incurred.  Benefit of the bargain is the difference between what you paid and what you should have paid for the business if you had known the actual income of the medical practice.

Fraud is both civil and criminal.  In addition to your lawsuit in the civil case, you could report the fraud to the government and the government could pursue criminal prosecution of the seller and others who were involved in illegal activities generating 40% of the income.

It would be advisable to speak with a business law attorney.


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