Chapter 1: Bob becomes a real estate
It is November 2007 and the economy of Bob is a recent
art school graduate working as an actor on a new Tyler Perry movie.
Bob got a wonderful 6 month contract with a 3 month advance on
After Bob’s second day of work he was getting gas and
a new Ferrari pulled up in the next stall. Bob was amazed and
started a conversation. It turns out the owner of a Ferrari was a
real estate investor. The driver of the Ferrari tells Bob amazing
stories of flipping homes, buying houses with no money down and no
credit check and never losing money on deals-because real estate
always goes up!
Bob is inspired, packs his bags, and leaves Atlanta to
go to Miami to begin his career in real estate investing the next
day. Shortly after arriving in Miami Bob sets up an LLC and is able
to secure pre-approval for a commercial real estate loan using his
job as an actor as income.
Once Bob gets the loan he finds a real estate agent
and signs a power of attorney to purchase a property on Bob’s
behalf. In the power of attorney Bob says, “in exchange for $1,000
real estate agent agrees to buy the most speculative high return
investment she can”. Bob feeling accomplished went to the Ferrari
dealership and awaited his payday.
Chapter 2: Bob runs into business
A month later Bob scrolls through missed calls from
Tyler Perry’s studio to see a missed call from the agent. When Bob
calls the agent back she says she purchased a property! Bob and the
agent meet and it turns out the property is a junkyard-literally.
With some industrial office space attached.
Bob was furious but the agent let him know the
investment was in a rapidly developing area by the water and in 10
years it could be an incredible investment. Bob, having no money,
knew he couldn’t maintain this property for 10 years and threatened
to sue the realtor if she couldn’t unwind the deal. The realtor,
insulted, stormed off and Bob never heard from her again.
When Bob tried to sell the property to pay back the
loan he discovered two other loans the agent took out against the
property. One was secured against the property, and he other was
secured against the proceeds of the landfill. Bob couldn’t find any
registered documents with the state or county for either loan. Bob
was eventually forced to file bankruptcy on behalf of the LLC. The
creditors are starting to pursue Bob’s personal assets for the
losses they incurred.
Chapter 3: Bob looks for a job
It’s April 2008 and Bob, not giving up on his goal of
being a real estate tycoon. Bob has an interview at a boutique
eight person investment firm in Atlanta but they turned him away
because they said they wanted “an Asian so they could win more
business with the rich Asians in the community”. Bob was
disappointed but kept looking.
Bob is able to secure a role at Lehman Brothers as
President of Risk, where he is responsible for determining whether
the company’s investment portfolio is too risky.
Bob loves his job. He just checks out what the ratings
agencies (Moody’s, Fitch, etc) say about the assets, mostly
mortgage-backed securities (MBS), in his portfolio and just copies
and pastes the reports findings, labels the research as his, and
sends it to shareholders. Bob also gets internal reports about the
quality of the MBS but they have a lot of numbers. Numbers stress
Chapter 4: Bob navigates the financial
In September 2008 a junior employee at Lehman, who
isn’t afraid of numbers, discovers the MBS are worth negative
billions of dollars, effectively bankrupting the firm. Millions who
invested in Lehman lost their life savings. The FBI and the SEC are
also investigating to both Lehman and Bob to see if either
committed any wrong doing.
Bob, always looking to get ahead, signs a tell all
deal book deal to describe the corruption at Lehman Brothers. Bob
exaggerated in his book but it became a New York Times bestseller.
The CEO of Lehman Brothers is so upset by the book we becomes
physically ill. Hmm the CEO’s family sends a cease and desist
letter demanding Bob recall the book and his claims.
Question 1: You are a brand new lawyer who
just passed the bar and Bob walks into your office asking for
advice. Please identify and analyze all of the issues where (1) Bob
is liable to someone else or (2) where someone else is liable to
Question 2: Bob has hard a really hard time.
Is there anything Bob could have done to have acted in a more
Bob is liable to receive his payments aginst the agent who did not explicitly mention about selling rights.
Now all shareholders can also hold Bob liable for sending misleadingaand false information . Also creditors of LLC can hold him liable for his money. The makers of Tyler Perry Movie can hold Bob liabke for breaking his contract and demand his 3month advance pay.
Bob could have identified all risks for signing off loans on property and buying the property with proper checks and controls . Also he could have communicated internal team at Lehmann Brothers about information before sending out to be more fair and transparent and could have checked and verified all numbers to justify them.
Even at his film job career he should have completed his contractual obligation else it is unethical and can be legally charged.
Get Answers For Free
Most questions answered within 1 hours.