(Objective 5-6) Under Section 11 of the Securities Act of 1933 and Section 10(b), Rule 10b-5, of the Securities Exchange Act of 1934, a CPA may be sued by a purchaser of registered securities. The following items relate to what a plaintiff who purchased securities must prove in a civil liability suit against a CPA.
The plaintiff security purchaser must allege or prove:
1. Material misstatements were included in a filed document.
2. A monetary loss occurred.
3. Lack of due diligence by the CPA.
4. Privity with the CPA.
5. Reliance on the financial statements.
6. The CPA had scienter (knowledge and intent to deceive).
For each of the items 1 through 6 listed above, indicate whether the statement must be proven under
a. Section 11 of the Securities Act of 1933 only.
b. Section 10(b) of the Securities Exchange Act of 1934 only.
c. Both Section 11 of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934.
d. Neither Section 11 of the Securities Act of 1933 nor Section 10(b) of the Securities Exchange Act of 1934.*
Objective 5-6
Describe accountants’ civil liability under the federal securities laws and related defenses.
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