Question

Dart Corp. engages Jay Associates, CPAs, to assist in a public-stock offering. Jay audits Dart's financial statements and gives an unqualified opinion, despite knowing that the financial statements contain misstatements. Jay's opinion is included in Dart's registration statement. Larson purchases shares in the offering and suffers a loss when the stock declines in value after the misstatements becomes known. In a suit against Jay and Dart under the Section 11 liability provisions of the Securities Act of 1933, Larson must prove that

A) The audit was conducted properly.
B) Dart intentionally included the misstatements.
C) Jay was unaware of the misstatements.
D) The misstatements contained in Dart's financial statements were immaterial.

Answer 1

To succeed in his suit, Larson must demonstrate that the misstatements were material and that they caused his loss.

Step-by-step explanation:

In a suit against Jay and Dart under the Section 11 liability provisions of the Securities Act of 1933, Larson must prove that the misstatements contained in Dart's financial statements were immaterial.

Under Section 11, a plaintiff does not need to prove that the audit was conducted properly or that Dart intentionally included the misstatements. The focus is on whether the misstatements were material, meaning they would have influenced a reasonable investor's decision to purchase the stock.

In this case, Larson suffered a loss when the misstatements became known. To succeed in his suit, Larson must demonstrate that the misstatements were material and that they caused his loss.