SOLVED

66) Which of the following is not a requirement in order to recover damages under Section 10(b) of the Securities Exchange Act of 1934 and the corresponding SEC Rule 10b-5? A) Privity. B) Reliance on the statement as the cause of the plaintiff’s loss. C) Reliance on the fraudulent statement. D) Fraudulent act or deception. E) Scienter. [Sami’s Coffee Shop] Javier, a new accountant who just opened his accounting firm, contracted with LittleBank to engage in accounting work for approval of loan applications. One of the applications was from Sami, owner of Sami’s Coffee Shop. Sami provided Javier with copies of her income and loss statements. While looking through Sami’s documents, Javier noticed multiple payments in large amounts for items listed only as “inventory” or “miscellaneous office supplies”, which was odd since Sami told him the Coffee Shop served only coffee and tea. Javier did not ask Sami about the discrepancy because Sami seemed like an honest person. Javier completed the audit and prepared an opinion letter to LittleBank stating that Sami’s Coffee Shop was in excellent financial condition and should feel confident in approving Sami’s loan. The letter included a broad, general disclaimer. After sending the letter, Javier procured professional indemnity insurance to protect him from any malpractice claim. A month later, Sami was arrested for selling stolen jewelry from her shop and she defaulted on the loan. 67) Under what theory could LittleBank sue Javier? A) None, because Sami’s conduct was not reasonably foreseeable. B) None, because Sami, not Javier, engaged in fraud. C) Strict liability. D) Fraud, because there is evidence of Javier’s wrongful intent. E) Negligence, because Javier failed to exercise the care of a competent, reasonable professional. 68) Javier claims that he should not be liable for negligence because Sami committed fraud. Is he correct? A) No, but only if he violated a statute. B) Yes, because he was not aware of Sami’s conduct. C) No, because he failed to detect fraud that a normal audit would have uncovered. D) Yes. E) Yes, because Sami’s conduct was not reasonably foreseeable. 69) Does Javier’s disclaimer in his opinion letter protect him from liability? A) Yes, as long as the disclaimer was part of the opinion letter. B) Yes, because a qualification will limit liability. C) No, because the disclaimer is broad and general. D) Yes, but only if he properly applied GAAP and GAAS. E) Yes, because a disclaimer protects an accountant from liability based on failure to detect fraud. 70) If Javier is sued for malpractice, would his new policy likely protect him? A) No, because insurance does not cover mistakes made by professionals. B) Yes, because he was insured at the time the claim was filed. C) Yes, because it is a professional indemnity insurance policy. D) No, because he was not insured at the time the claim arose. E) No, because professional indemnity policies do not usually cover malpractice. Â Â