EP Medsystems V. Echocath Legal Case Study

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D. PP. 895). The remaining five items merit further scrutiny.

Misrepresentation

First did DeBernardis make "a statement that either misrepresented or omitted a fact" (Textbook. N.D. PP. 895)? Yes, the multiple references to "imminent" contract signings over the period August 1996 to February 1997, and specifically in phone calls from December 16-20, 1996 (FindLaw.com. December 26, 2000. PP. 3) demonstrates that the CEO understood the importance of the MedSystem investment. An investment dependent on the execution of the major medical contracts, which he knew were not coming to fruition. More interesting though was the delivery of updated financial operating model statements on December 20, 1996 which projected a massive surge in sales from $852,000 in 1997 to $3,286,000 in 1998 (FindLaw.com. December 26, 2000. PP. 3); key because these figures tie the medical contracts to revenues, as well as an articulation that "negotiations for these contracts are in process" (FindLaw.

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com. December 26, 2000. PP. 3 ). Based on EchoCath's failure to deliver any contracts or income from these "imminent" contracts over the following 15 months, there is reason to assert that there was "no reasonable basis for a prediction and is a misstatement because the person who made it could not honestly have believed it" (Textbook. N.D. PP. 897).

Materiality

Next to materiality; which has several components. A misrepresentation is material "if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to proceed" (Textbook. N.D. PP. 899). On its face MedSystem certainly "relied on the representations from EcoCath's CEO of 'imminent' contracts" (FindLaw.com. December 26, 2000. PP. 3) when they invested 1.4 million in the company. Yet, is EcoCath protected from material misrepresentations under Safe Harbor.....

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