Lenny Frost is a sophisticated investor. He has been investing in various shares and financial instruments for
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Lenny Frost is a sophisticated investor. He has been investing in various shares and financial instruments for the past years and his portfolio has grown significantly during that time. As a knowledgeable investor, Lenny was comfortable joining a small group of investors who were discussing the private purchase of $ of common shares for Broad Corporation. The group of investors met with the management of Broad Corporation to discuss the potential investment a number of times.
The small group of investors requested some financial information as well as other business information such as the strategic and operational plans. This information was supplied by management and reviewed in detail by the group of investors. The investors decided to go ahead with the purchase, but just before the agreement was completed, one of the investors withdrew. As a result, the sale was not finalized. Broad Corporation then decided to issue common stock to the public, through an initial public offering. Wilson & Jones, CPAs were hired by Broad to perform an audit.
Lenny, still impressed with the company purchased $ worth of common shares through the initial public offering IPO He purchased shares at $ per share.
The company did well for the first six months, but by the end of the third quarter, earnings had dropped significantly. As a result of the drop in earnings, the share price dropped to $ per share.
In order to minimize his losses, Lenny decided he would sell his shares to Lola. He received $ for his shares, recognizing a loss of $ Now, Lenny is suing the auditors Wilson & Jones because of some relatively minor misstatements that were discovered in the financial statements subsequent to the IPO.
Required:
Discuss whether or not Lenny will be successful in his suit for damages.
Subsequent to the sale of Lennys shares to Lola, a material misstatement was discovered in the financial statements. Lola then disposed of these shares for $ per share. She has also decided to sue Wilson & Jones for her loss.
Discuss whether or not Lola will be successful in her suit for damages.
Related Book For
Fundamentals Of Investing
ISBN: 9780134083308
13th Edition
Authors: Scott B. Smart, Lawrence J. Gitman, Michael D. Joehnk
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