Printer Friendly

Court dismisses securities claim.

A U.S. district court in Illinois dismissed a suit charging an accounting firm with negligence and violations of federal securities law and the Racketeer-Influenced and Corrupt Organizations Act.

The case was brought by investors in a real estate development created by Pavilion Development Corp. Pavilion issued securities to investors for the purported purpose of raising capital for a residential development called "Honeytree." The investors alleged they were induced to invest in the securities by false and misleading statements and omissions of facts by Pavilion and its officers. They further claimed their securities were worthless.

The accountants, Berry, McEnerney and Cukierski (BMC), performed various accounting services for the partnership. The investors claimed BMC aided and abetted Pavilion's alleged securities fraud and were negligent in providing services to Pavilion.

The court dismissed the securities law claims, noting the investors' pleadings were nothing more than bare allegations BMC had been reckless in not knowing that the information Pavilion reported was false and misleading and in not knowing that the offering materials to which BMC contributed were intended for soliciting investors. These allegations were insufficient to turn a possible negligence claim into an action for securities fraud, the court concluded.

The court also dismissed the investors' negligence action, noting the Illinois Public Accounting Act provides that "no person, partnership or corporation licensed to practice public accountancy under the Act shall be liable for civil damages to be sons not in privity of contract." In light of the statute and its legislative history, BMC could not be liable to third-party investors for negligent misrepresentation. (Robin et al. v. Falbo, U.S District Court for the Northern District of Illinois Eastern Division, no. 91 C 2894) Editor's note: Thanks to Randy Sue Schreiber of Querrey & Harrow for contributing the Robin v. Falbo case, which she successfully defended. Edited by Wayne Baliga, CPA, JD, CPCU,vice-president of AON Corp.
COPYRIGHT 1993 American Institute of CPA's
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1993, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

Article Details
Printer friendly Cite/link Email Feedback
Title Annotation:Robin v. Falbo
Publication:Journal of Accountancy
Article Type:Brief Article
Date:Sep 1, 1993
Previous Article:Supreme Court ends CPA solicitation ban.
Next Article:Are age discrimination awards excludable? Two opinions.

Related Articles
Court dismisses massive tax-shelter fraud case.
RICO: the threat is lifted.
Do-it-yourself brain surgery, or why you may need an appellate specialist.
Defeating efforts to delay s. 1983 cases.
U.S. Appeals Court: DUE PROCESS.
North Carolina court rejects 'reform' rule requiring expert review of med-mal claims.
Judge dismisses lawsuit against SPSA.
AICPA files briefs in securities and malpractice cases.

Terms of use | Copyright © 2017 Farlex, Inc. | Feedback | For webmasters