Printer Friendly

Oral misrepresentations suffice for securities action.

The U.S. Court of Appeals, Fourth Circuit, ruled that oral misrepresentations by an accountant-even when contradicted by specific written warnings-may sustain a securities fraud claim.

The Myers family collectively invested $4.8 million in 15 real estate limited partnerships recommended by the family's accountant, Robert Finkle.

Although the Myers took substantial tax deductions, the partnerships are now in financial distress. The family sued Finkle for its lost investments and consequential damages.

Finkle's main defense was his claim the Myers did not "rely justiflably" on his telling them the investments would result in "economic profits." To the contrary, Finkle argued (and the Myers conceded), they did not study the private placement memorandum that accompanied each investment and that contained specific warnings on the risks of this investment.

The court observed several factors that militated against sustaining the summary judgment granted Finkle by the trial court. It said wealth alone does not brand someone as a sophisticated investor for the purpose of determining justifiable reliance. Factors such as education, professional status and investment experience should be taken into consideration. The court also said there was a factual question as to whether the Myers received the private placement memorandums before or after the investments were placed.

Finally, the Myers claimed Finkle initiated the investments just before the filing of their tax returns, allegedly leaving the family with insufficient time to review the investments properly.

The court ruled summary judgment for Finkle was inappropriate and the case was remanded to the district court for reconsideration of the factual issues. (Myers v. Finkle, Fed.Sec.L. Rep. 96,404, 4th Cir. 11/27/91)
COPYRIGHT 1992 American Institute of CPA's
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

Article Details
Printer friendly Cite/link Email Feedback
Publication:Journal of Accountancy
Date:May 1, 1992
Previous Article:Business groups differ on economic outlook.
Next Article:Securities law statute of limitations ruling overturned.

Related Articles
Broken promises, lost benefits: holding employers to their word.
Courts rule in different directions on class actions against accountants.
Crime victims in apartment houses may be defrauded consumers.
Common law remedies for computer failures.
Remedies for wronged investors: recent federal laws and court decisions have diminished the rights of investors to recover for fraud and other...
Surgical risk from painkiller may be brief.
Beware the economic loss rule: it limits recovery for commercial economic loss on tort theory, but exceptions provide relief from draconian...

Terms of use | Privacy policy | Copyright © 2021 Farlex, Inc. | Feedback | For webmasters