Part A
The common stock of Wilson, Incorporated is owned by twenty stockholders. Wilson's financial statements as of December 31, 2013, were audited by Doe & Company, CPAs, who rendered an unqualified opinion on the financial statements. In reliance on Wilson's financial statements, which showed net income for 2013 of $1,500,000, Peters purchased 10,000 shares of Wilson stock for $200,000 on April 10, 2014. Wilson's financial statements contained material misstatements. Because Doe did not carefully follow GAAS, it did not discover that the statements failed to reflect unrecorded expenses, which reduced Wilson's actual net income to $800,000. After disclosure of the corrected financial statements, Peters sold his shares for $100,000, which was the highest price he could obtain. Peters has brought an action against Doe under federal securities law and common law.
Answer the following, setting forth reasons for your conclusions:
a. Will Peters prevail on his federal securities-law claims?
b. Will Peters prevail on his common-law claims?
Part B
Able Corporation decided to make a public offering of bonds to raise needed capital. It publicly sold $2,500,000 of 12% debentures in accordance with the registration requirements of the Securities Act of 1933. The financial statements filed with the registration statement contained the unqualified opinion of Baker & Company, CPAs. The statements overstated Able's net income and net worth.
Through negligence, Baker did not detect the overstatements. As a result, the bonds, which originally sold for $1,000 per bond, have dropped in value to $700. Ira is an investor who purchased $10,000 of the bonds. He promptly brought an action against Baker under the Securities Act of 1933.
Answer the following, setting forth reasons for your conclusions:
a. Will Ira likely prevail on his claim under the Securities Act of 1933?
b. Identify the primary issues that will determine the likelihood of Ira's prevailing on the claim.

  • CreatedSeptember 22, 2014
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