Accountants not liable in failed private placement.In 1983 California-based Spendthrift Farms, Inc., then the largest thoroughbred horse breeding operation in the world, solicited investors in a private placement of stock. The investors were required to have a net worth of $5 million, sufficient knowledge to evaluate the risks and a warranty that they carefully reviewed the private placement memorandum private placement memorandum The documentation that provides information on a new security issue. It is similar to but less extensive than a prospectus. . By 1985, the price of the shares had declined dramatically. The following year the investors sued multiple defendants, including Deloitte & Touche, alleging securities law violations, fraud and negligent misrepresentation misrepresentation In law, any false or misleading expression of fact, usually with the intent to deceive or defraud. It most commonly occurs in insurance and real-estate contracts. False advertising may also constitute misrepresentation. . On appeal, the U.S. Court of Appeals, Ninth Circuit, upheld the district court's dismissal of Deloitte from the case. The court said the private placement memorandum contained a number of disclaimers emphasizing that valuations of Spendthrift One who spends money profusely and improvidently, thereby wasting his or her estate. Under various statutes, a spendthrift is a person who wastes or reduces her estate through excessive drinking, gambling, idleness, or debauchery in a manner that exposes that individual or did not represent management's estimate of value nor did any valuation in the memorandum represent Spendthrift's worth. The court said the investors were not neophytes in business or financial affairs. Moreover, the district court was allowed to consider this in determining whether a reasonable shareholder would consider valuation figures in the private placement memorandum to be a significant factor in making an investment decision. In other words Adv. 1. in other words - otherwise stated; "in other words, we are broke" put differently , the court could look to the sophistication so·phis·ti·cate v. so·phis·ti·cat·ed, so·phis·ti·cat·ing, so·phis·ti·cates v.tr. 1. To cause to become less natural, especially to make less naive and more worldly. 2. of investors in assessing the reasonableness of their reliance on the valuation figures. (McGonigle v. Combs, 92 Daily Journal D.A.R.i P.8 578) Edited by Wayne Baliga, CPA (Computer Press Association, Landing, NJ) An earlier membership organization founded in 1983 that promoted excellence in computer journalism. Its annual awards honored outstanding examples in print, broadcast and electronic media. The CPA disbanded in 2000. , JD, vice-president, AON Corp. |
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