Question

Fritz Corporation, whose shares are publicly traded, engaged Hay Associates, CPAs, to audit its financial statements. Hay gave an unqualified opinion, despite knowing that the financial statements contained misstatements. Hay's opinion was included in Fritz's Form 10-K filed with the Securities and Exchange Commission. Samson purchased shares and suffered a loss when the stock declined in value after the misstatements became known.

In a suit against Hay under the antifraud provisions of Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934, Samson must prove all of the following except that:

a) hay acted with intent to deceive.

b) samson was a foreseen user of the financial statements.

c) samson suffered a loss as a result of reliance on the financial statements.

d) the stock purchase involved a national securities exchange.

Answer 1

Samson would not have to prove that the stock purchase involved a national securities exchange in a suit under Section 10(b) and Rule 10b-5 against Hay concerning the audit of Fritz Corporation's financial statements. Option d.

Step-by-step explanation:

In the context of the given scenario.

Samson, who incurred losses after purchasing Fritz Corporation's stock, would not need to prove that the stock purchase involved a national securities exchange when suing Hay under Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934 for issuing an unqualified opinion despite knowing about misstatements in financial statements.

To succeed in a suit for securities fraud under Rule 10b-5, typically, the plaintiff must prove items such as reliance on the fraudulent statements, an intent to deceive (or 'scienter') by the defendant, and that the plaintiff suffered a loss due to the reliance on the misstatement.

This suits arise under the antifraud provision and are designed to maintain the integrity of the securities market.

However, the specific stock exchange where the shares were traded is generally irrelevant to establishing a claim under Rule 10b-5. The focus is on the content of the statements and the reliance upon them rather than the venue where the securities were purchased.

So Option d is correct.