National Conference of Bar Examiners v. Multistate Legal Studies, Inc.

soundness of Company. Waiter, who was serving the tablenext to Agent and Customer, overheard the statements. Basedon those statements, Waiter purchased a substantial numberof shares of Company stock. Within weeks after Waiter’spurchase, Company filed for bankruptcy and Waiter lost hisentire investment. In a suit by Waiter against Agent torecover for his loss, will Waiter prevail?(A) Yes, because Waiter reasonably relied on the statementsmade by Agent.(B) Yes, because Agent should have foreseen that Waiterwould hear the false statements.(C) No, because Agent was not attempting to induce Waiterto purchase any Company stock.(D) No, because investing in newly issued stock is toospeculative.Answer key: CThe PMBE question also involves a waiter who overhears fraudulentinsider information not intended for his ears, invests his moneybased on this information, loses it, and sues the one who madethe statements. Two of the answer choices are also nearlyidentical:Bilko was an investment swindler who ran a Ponzi scheme.One evening he took a group of unwitting investors to dinnerhoping to convince them to invest in a new business venture.At the restaurant Bilko falsely told the gathering that hiscompany’s stock price would appreciate 200% within threemonths. Dupe, a waiter at the restaurant, overheard Bilko’spresentation and decided to invest in the enterprisehimself. Thereafter, Dupe invested $10,000, his entire lifesavings, in Bilko’s business venture. Two months laterBilko’s company became insolvent and filed for bankruptcy.If Dupe sues Bilko for fraud seeking to recover damages forhis investment loss, will he prevail?12