ExpertHard1 markMultiple Choice
CPA · Question 08 · Area 1: Ethics & Procedures
Under Section 11 of the Securities Act of 1933, which of the following must a plaintiff prove to hold a CPA liable for a misstatement in a registration statement?
Under Section 11 of the Securities Act of 1933, which of the following must a plaintiff prove to hold a CPA liable for a misstatement in a registration statement?
Answer options:
A.
The plaintiff relied on the financial statements.
B.
The CPA acted with scienter (intent to deceive).
C.
The plaintiff suffered a loss and the financial statements contained a material misstatement.
D.
The CPA was negligent.
How to approach this question
Contrast 1933 Act (Section 11) vs 1934 Act (Rule 10b-5). 1933 Act is 'pro-plaintiff': No reliance, no negligence, no scienter required to be proven by plaintiff. Just Loss + Misstatement.
Full Answer
C.The plaintiff suffered a loss and the financial statements contained a material misstatement.✓ Correct
Under Section 11 of the 1933 Act, a plaintiff need only show (1) they acquired the security, (2) they suffered a loss, and (3) the registration statement contained a material misstatement. Reliance and negligence are not initial elements for the plaintiff.
Common mistakes
Assuming reliance is required (it is for 1934 Act, not 1933 Section 11).
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