Security fraud
In 1984, several individuals, including David Greenberg, formed seven limited partnerships to develop and operate a chain of one hundred “Video USA” video rental stores.
One hundred and sixteen limited partners, who had invested $13 million in three private placements, sued the accounting firm Touche Ross, among others, for securities fraud. They alleged that Touche Ross had failed to disclose that David Greenberg was a convicted felon; that his twelve-year-old son was the sole officer, director, and shareholder of one of the corporations that served as a general partner; and that the principals used fraudulent invoices and made fraudulent claims against insurance companies.
The limited partners further claimed that Touche Ross had prepared the materially misleading financial projections attached as exhibits to the offering memoranda. Touche Ross did not issue an opinion or certification regarding any part of the offering documents.
Attached to each of the projections that Touche Ross issued was a letter stating that the projection was based on management’s “knowledge and belief,” cautioning that the projection “does not include an evaluation of the support for the assumptions underlying the projections.”
Search the Internet and read the complete case of Shapiro v. Cantor, 123 F.3d 717 (2d Cir. 1997).(Half page- 2paragraphs)
- Is Touche Ross responsible for disclosing the criminal history of one of its principals? If so, how? If no, why?
- To what extent, if any, must Touche Ross report to the officers, directors, and shareholders of the corporations that served as general partners? Why?
- Is Touche Ross responsible for reporting a principal who used fraudulent invoices and claims against insurance companies? Why or why not?
- Is the projection as issued by Touche Ross materially misleading? Why or why not?
- To what extent, if any, is Touche Ross liable under Section 10(b) to the limited partners?
Support your answer using examples and legal reasoning.
Search the Internet and read the case of SEC v. Talbot, 530 F.3d 1085 (9th Cir. 2008)Based on the case, answer the following questions: (half page 2 paragraphs)
- Would the misappropriation theory apply to a case in which a person defrauded a bank for getting a loan or embezzled cash from a bank and used the proceeds to purchase securities?
- If the fiduciary disclosed to the source of the nonpublic information that trading was planned on that information, would trading on that information constitute a Section 10(b) violation?
- Would it violate any other laws? If so, how? If not, why?
- Would it be ethical? Provide a rationale to support your answer.
Support your answers using examples and reasoning
Although Touche Ross is aware of the criminal history of its principal, it did not disclose it to those entrepreneurs who willingly invested their funds in them. Being an audit firm, it was not entirely the responsibility of Touche Ross to disclose the criminal history of the firm’s principals. This should have been the sole responsibility of the law firms that were engaged in the whole process of forming the partnership and signing of the investment deal.
Touche Ross must report to the officers when it comes to everything pertaining to the audits and financial statements. This was their responsibility. It is not expected that Touche Ross should withhold any important information concerning the firm’s finances. This………………..
