Question: Norman Cross was the independent auditor for Home Stakes Production Company
Norman Cross was the independent auditor for Home-Stakes Production Company, a company that offered investors interests in oil and gas drilling programs. The programs offered investors both income and tax deductions. Cross issued unqualified opinions regarding Home-Stakes's financial statements. He prepared consolidated financial statements and start-up balance sheets for two programs. All these documents were included, with Cross's consent, in 1933 Act registration statements filed with the SEC and included in prospectuses and program books distributed to investors. When Home-Stakes collapsed after it was discovered that the oil and gas drilling programs were a classic Ponzi scheme (with investments from new investors providing the "profits" to old investors), purchasers of the programs sued Cross under Securities Exchange Act Section 10(b) and Rule 10b-5. Was Cross found liable, or was he only an aider and abettor to Home-Stakes's fraud with no Rule 10b-5 liability?
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