Reference no: EM132731168

Assume a securities lawyer has just received a phone call from her client, the Chief Financial Officer (CFO) of XYZ Corporation, and informed that a securities lawsuit may be filed against her client by a group of the company's shareholders. XYZ's share price recently dropped from $40 to $4 per share after the company announced that it had to restate its quarterly results. The shareholders also learned that the CFOs compensation package ($20 million) is tied to the attainment of a $40 common stock share price. Although her client is innocent, the attorney believes the shareholders will view this as a case of securities fraud and file the suit against the CFO, alleging that due to the large compensation, the client stood to gain from reaching the share price, and with the client's ability to influence the company's revenue, the CFO possessed the motive and opportunity to defraud XYZ's investors.

Problem 1: Why might the facts of this case lead the attorney to conclude that a lawsuit against her client is imminent? How might the attorney assert a valid "good faith" defense?