1. a. Why were so many defendants not held responsible for the misleading audited financial statements?
b. Which defendants were not successful in claiming the due diligence defense with respect to these financial statements? Why were they denied the defense?
2. Does being “new” make any difference in terms of directorial liability for a signed registration statement?
3. What would you do differently in the future if you were Peat, Marwick?
Bowling as a leisure activity and sport grew rapidly in the 1950s. BarChris built alleys. Its revenues grew from $800,000 in 1956 to $9,165,000 in 1960. By 1962 overbuilding caused construction to halt. BarChris ran into serious financial problems. It filed a registration statement (effective May 1961) for new bonds to raise cash and the bonds were issued. Circumstances were grave when the registration statement became effective. BarChris filed for bankruptcy in October 1962.