Question: Due to alleged overstatements of the value of loans held
Due to alleged overstatements of the value of loans held by First National Bank of Keystone (Keystone), the federal Office of the Comptroller of the Currency (OCC) began investigating Keystone. OCC required Keystone to retain an auditor to determine the appropriateness of Keystone's accounting treatments of its purchased loans and securitization of loans. Keystone hired Grant Thornton LLP to perform an audit of Keystone's financial statements. In April 1999, Grant Thornton issued an audit opinion to Keystone stating that its 1998 financial statements-which showed shareholder equity of $84 million-were fairly stated in accordance with GAAP. In fact, Keystone was insolvent. Grant Thornton's audit report stated that "This report is intended for the information and use of the Board of Directors and Management of The First National Bank of Keystone and its regulatory agencies and should not be used by third parties for any other purpose." Gary Ellis, a candidate to become Keystone's next president, reviewed in April 1999 the 1998 financial statements audited by Grant Thornton. At the time, Ellis was president of another bank and not an employee of Keystone. He became a candidate for the Keystone presidency in late March 1999. Relying on the audit, Ellis decided to accept Keystone's offer to be its president at a base salary of $375,000. He also purchased $49,500 in Keystone stock. When Keystone failed, Ellis claimed he lost over $2 million in compensation he would have earned had he not taken the Keystone presidency, as well as losing the full amount of his investment in Keystone stock. He sued Grant Thornton for negligent misrepresentation. Under the Restatement (Second) of Torts, was Ellis a proper plaintiff to whom Grant Thornton owed a duty not to be negligent when conducting the audit?
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