Reg Sec 10

Question 1

Anti-fraud provisions of the 1934 Act

-breach of Contract

Answer 1

A successful plaintiff in an action under the anti-fraud provisions will be entitled to recover any actual damages resulting from the fraud

-breach of contract is common law and is rewarded with money damages, people that can sue are anyone in privity or named in contract. Accountant defense is didn't breach or fully performed under contract. 
Purchaser must prove MILE
-Material misstatement or omission
-Info-F/S cause harm to plaintiff
-Loss(damages)
-Error

Question 2

Privity vs Scienter

Rule 10b-5 SEA of 1934(Scienter)

Answer 2

Privity is intended third party (not required in a fraud case). Scienter(knowingly made with intent) refers to an intent to deceive, which is the essence of fraud.

Rule 10b-5 is part of section 18 of the Securities Exchange Act of 1934, which specifically requires that the plaintiff prove reliance, intent to deceive, material mis or omission, suffered loss.(Similar to common law and must prove all 4 MILE)

Question 3

Section 11 of SEC Act 1933(Anyone can sue)

Common Law

Answer 3

plaintiff must prove loss and material misrepresentation or material omission of fact. Neither scienter or privity are required. CPA best defense is to show conducted audit with due diligence or plaintiff knowledge. (misleading in Registration stmt and must prove 2 of 4ML)

Intent to deceive is a required element of common law fraud and Due diligence might be a defense in suit for negligence.

Question 4

Negligence(Foreseen User)

Answer 4

Foreseen user(privity or known and foreseen), plaintiff Must prove MILE or error/NEGligent

NEGligent

• Nondisclosure of info(I/C weakness)
• Errors
• GAAS/GAAP not followed

Question 5

Fraud or Gross Negligence (1934 act)Any party

Answer 5

Fraud(knowledge of falsity)

Plaintiff must prove :Reliance on FS, Intent to deceive, Material Misstatement, Suffered loss

Question 6

Ultramares vs Touche rule

Answer 6

under the Ultramares vs Touch ruling, only parties in privity can sue the auditor for negligence.

Question 7

Givien false unmodified report

Section 18 of the SEC Act of 1934

Answer 7

by agreeing to issue an unmodified report despite knowledge of material misstatements to FS any party suffering a loss can sue.

Section 18 applies to require Financial Statement filing with the SEC.

Question 8

Common Law (CAMPS)

Answer 8

plaintiff must prove the following to succeed in a case based on negligence: Causal relationship, absence of due care, material misstatement, privity or equivalent, suffered loss