The Question and Answer Board

[WTMHouston]

That solution will solve the bookkeeping nightmare for the company and will allow settlement, rather than reversal, of all of the trades, but it will have no effect on the liability of the shareholder who sold shares he had no right to sell. The folks who bought from him still have some unresolved damage claims.

Depending on what state they are incorporated in, their proposed solution may not be legal (and may still subject the company to a damage claim) since it treats current holders of the same class of stock differently, to the detriment of one group. Essentially, the "solution" tells the group, we are going to give you what you bought, but then dilute it without diluting anyone else's holdings.

But, as I said initially, regardless of what was represented by the seller, he could only sell what he owned and had a legal right to sell.

This solves little more than trade settlement in form and gets their transfer account straitened out, again in form. It solves nothing with respect to the substance of the underlying problem and the losses that will be suffered by those who bought and held.