I am being sued by investors in Cardozo & Co., Inc. who invested in the IPO, and others who invested in anticipation of the proposed merger. He is also being sued by Prosser bank who relied on Cardozo & Co., Inc 's proxy statements to issue them a loan. What common and statutory liabilities I and what accountant client privilege does he have?
Under common law I would be found liable for negligence to the investors in Cardozo & Co., Inc. but not to Prosser Bank. He will also be found liable to Investors under the Securities act of 1933 and the Securities Exchange Act of 1934. Professional-client privilege would not enable me to refuse to respond to a subpoena from a government agency and the working papers …show more content…
I did find several irregular entries that he suspected to be bribes but he took no action regarding the information.
I also rendered tax advice concerning tax shelters in the Cayman Islands to the firm 's president. In addition, he prepared financials or the proxy statements that were filed with the SEC In anticipation with the merger. The proxy statements were used by Prosser bank without my knowledge) to secure a loan for Cardozo & Co., Inc. It was revealed that Cardozo & Co., Inc 's President had been siphoning money from the company, while still making the company look profitable. This caused the merger deal to collapse and the company to border on insolvency and Prosser bank to be unable to collect loan proceeds.
The company is under investigation by the United States Department of Justice (DOJ), the Intenrnal Revenue Service (IRS), the Securities Exchange Commission (SEC), the Florida Attorney General and the Florida Department of Revenue. Reginald Varghese was told by the new company president not to obey any summons or subpoenas by these governmental agencies. I am currently being sued by investors at the time of the IPO and those who invested in anticipation of the proposed mergers and also by Prosser Bank who is suing for their …show more content…
The investor would have to prove that they relied on the information but they don’t have to prove that it was the defendants fault. The defense for this would be good faith (acting without scienter)that I had no knowledge that the statement was false or misleading. I had no idea about the overstating of the net sales and net profits or the siphoning of profits by the company President, but he did notice suspicious entries he believed to be bribes that he didn’t investigate further. (Mallor, 2010, p. 1202)
b. Reginald Varghese would not be found liable under Rule 10b-5 of the Securities Exchange Act of 1934 act.
Rule 10b-5 bars any person from making a misstatement or omission of material fact in relation to the purchase or sale of any security. The wrongful act was in association with the national securities exchange, which is one of the requirements of Rule 10b-5. A purchaser of a security is able to sue an auditor who has misstated or omitted a material fact without requiring privity. The defendant must have acted with scienter, intent to deceive, which isn’t the case in this situation therefore I wouldn’t be found liable under Rule 10b-5. (Mallor, 2010, p. 1202)
IV. I wouldn 't be able to allege accountant-client privilege to ignore the subpoenas from the government