Question

Dart Corporation engaged Jay Associates, CPAs, to assist in a public stock offering. Jay audited Dart's financial statements and gave an unqualified opinion, despite knowing that the financial statements contained misstatements. Jay's opinion was included in Dart's registration statement. Hansen purchased shares in the offering and suffered a loss when the stock declined in value after the misstatements became known.

In a suit against Jay and Dart under the Section 11 liability provisions of the Securities Act of 1933, Hansen must prove that:

a) the unqualified opinion contained in the registration statement was relied on by Hansen.

b) jay knew of the misstatements.

c) jay was negligent.

d) the misstatements contained in Dart's financial statements were material.

Answer 1

In a Section 11 lawsuit under the Securities Act of 1933, Hansen must prove the materiality of misstatements in Dart's financial statements, not the reliance on the registration statement or the auditor's knowledge.

Step-by-step explanation:

In a suit against Jay Associates and Dart Corporation under Section 11 of the Securities Act of 1933, Hansen must prove that the misstatements in Dart's financial statements were material. Section 11 provides that, in case of a material misstatement or omission in a registration statement, the purchaser of the security does not need to prove reliance on the statement or the auditor knowledge of the misstatement. Instead what must be demonstrated is the materiality of the misstatement, meaning that it would have been considered significant by a reasonable investor when making an investment decision.