Items 1 and 2 are based on the following:
Dart Corp. engaged Jay Associates, CPAs, to assist in a public stock offering. Jay audited Dart’s financial statements and gave an unqualified opinion, despite knowing that the financial statements contained misstatements. Jay’s opinion was included in Dart’s registration statement. Larson purchased shares in the offering and suffered a loss when the stock declined in value after the misstatements became known.
In a suit against Jay and Dart under the Section 11 liability provisions of the Securities Act of 1933, Larson must prove that
- Jay knew of the misstatements.
- Jay was negligent.
- The misstatements contained in Dart’s financial statements were material.
- The unqualified opinion contained in the registration statement was relied on by Larson.
If Larson succeeds in the Section 11 suit against Dart, Larson would be entitled to
- Damages of three times the original public offering price.
- Rescind the transaction.
- Monetary damages only.
- Damages, but only if the shares were resold before the suit was started.