In 1998, after working at two banks for about ten years, Bryan J. Mitchell helped found MCG Capital Corporation, a venture-capital firm that invested in the media, communications, and technology sectors. MCG went public in 2001, and Mitchell served as its CEO and chair of the board. Various documents filed with the SEC stated that Mitchell “earned a B.A. in economics from Syracuse University.” In fact, he attended Syracuse for only three years and did not graduate. After being pressured by a journalist, Mitchell disclosed the misrepresentation to the MCG board. The same day, the company issued a press release correcting the statement. The board subsequently stripped Mitchell of his title as chair of the board and made him repay certain bonuses and loans.

The press responded negatively to “another CEO that lied about his résumé” and speculated about “what else might not be right.” On the day the press release was issued, MCG’s stock price dropped from $11.85 per share to $8.40 but 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 Mitchell’s lie about having a college degree material? If you had been a member of the MCG board, would you have been comfortable keeping Mitchell as CEO? [Greenhouse v. MCG Capital Corp., 392 F.3d 650 (4th Cir. 2004).]