In 2008, after working at two banks for about eight years,

Scenario 3-Securities

In 2008, after working at two banks for about eight years, Noah Lott helped found NAL Capital Corporation, a venture capital firm that invested in the media, communications, and technology sectors. NAL went public in 2011, and Lott served as its CEO and chairman of the board. Various documents filed with the SEC stated that Lott “earned a BBA degree in finance from Columbia University.” In fact, he attended Columbia for only three years and did not graduate. After being pressured by a journalist, Lott disclosed the misrepresentation to the NAL board. The same day, the company issued a press release correcting the statement.

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The press responded negatively to “another CEO that lied about his resume” and speculated about “what else might not be right.” On the day the press release was issued, NAL’s stock price dropped from $22.85 per share to $18.40, but it fully recovered within a month.

Shareholders sued, alleging that the misrepresentation violated section 11 of the 1933 Act, section 10(b) of the 1934 Act, and Rule 10b-5.

Was Lott’s lie about having a college degree material?

Would your answer be the same if a CEO lied about having helped to take a company through an initial public offering and subsequent acquisition by another company and having led a pharmaceutical company from incorporation through human clinical trials and launch of a new drug?

If you were a member of the NAL board, would you be comfortable keeping Lott as CEO once you learned that he had lied about having a college degree?