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ove, however, cannot be established since the available evidence makes it apparent that the omission or misstatement of material facts was not deliberate. SEC recognizes misrepresentation as an offence (Miller et al., 2008, Page 572).
In suing Mitchell & Moss and demanding recovery, those who purchased the Whitlow & Company shares of stock would base their argument on negligence on the part of the former and its major deviations from the stipulated norms of auditing and due diligence standards. They are further required to provide evidence that (i) they were third party beneficiaries in the contract between Mitchell & Moss and the Whitlow & Company and (ii) Mitchell & Moss is legally obliged to act without negligence in the audit of the Whitlow & Company. There certainly were instances in which such claims by third party found favour, the conventional viewpoint is that it is iniquitous to implicate auditors with unlimited liability on charge of negligence. The present case is broadly within the scope of the latter view.
Section 11 of the Securities Act of 1933 imposes civil liability on accountants for misstatements and omissions of material facts (Miller et al., 2008, Page 650). On the basis of this, Jackson asserts that she suffered a loss by relying upon the financial statements, prepared and certified by Mitchell & Moss, which were misleading. This claim for recovery of damage, however, is valid only if she succeeds in establishing that the untruth or omission was not known to her at the time of purchasing the Whitlow & Company shares of stock.
Jackson’s is a case of potential liability in the plaintiff’s favor in which it becomes entirely the defendant’s responsibility to explain why he should not be held liable. One option available for Mitchell & Moss is to argue that the alleged omission or untruth could, in all likeliness, be deemed to be known to Jackson, she being a member of the Private Placement Group having access to and sound knowledge of
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