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Keywords

plaintiffdefendantliabilityappealfiduciarytrustpartnershipcorporation
plaintiffdefendantliabilityappealfiduciarytrustpartnershipcorporation

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Shapiro v. Cantor, 123 F.3d 717, Fed. Sec. L. Rep. P 99,522

Facts

In 1984, several individuals formed limited partnerships to operate a chain of video rental stores and created corporations to serve as general partners. The investors, approximately 116 limited partners, invested around $13 million, claiming they were fraudulently induced to invest due to material misrepresentations by the defendants, including the accounting firm Touche Ross. The complaint alleged that Touche Ross participated in the fraudulent scheme by providing accounting and financial analysis for the offering memoranda, but the district court found that the firm had no duty to disclose certain information about one of the principals being a convicted felon.

In 1984, several individuals formed limited partnerships to operate a chain of video rental stores and created corporations to serve as general partners. The investors, approximately 116 limited partners, invested around $13 million, claiming they were fraudulently induced to invest due to material misrepresentations by the defendants, including the accounting firm Touche Ross.

Issue

Did the accounting firm Touche Ross have a duty to disclose information regarding a principal's criminal history and other alleged fraudulent activities in connection with the limited partnerships?

Did the accounting firm Touche Ross have a duty to disclose information regarding a principal's criminal history and other alleged fraudulent activities in connection with the limited partnerships?

Rule

An accountant has no duty to disclose information unless there is a fiduciary or similar relationship of trust and confidence with the investors, and mere aiding and abetting does not constitute primary liability under § 10(b) of the Securities Exchange Act.

An accountant has no duty to disclose information unless there is a fiduciary or similar relationship of trust and confidence with the investors, and mere aiding and abetting does not constitute primary liability under § 10(b) of the Securities Exchange Act.

Analysis

The court analyzed the allegations against Touche Ross and found that the firm did not make any false statements or omissions that would trigger liability under § 10(b). The court emphasized that the plaintiffs failed to demonstrate that Touche Ross had a duty to disclose the criminal history of a principal or that it had made any material misstatements in the financial projections provided. The court also noted that the cautionary language in the projections indicated that the investors could not have reasonably relied on them.

The court analyzed the allegations against Touche Ross and found that the firm did not make any false statements or omissions that would trigger liability under § 10(b).

Conclusion

The Court of Appeals affirmed the district court's dismissal of the claims against Touche Ross, concluding that the firm had no duty to disclose the information alleged by the plaintiffs.

The Court of Appeals affirmed the district court's dismissal of the claims against Touche Ross, concluding that the firm had no duty to disclose the information alleged by the plaintiffs.

Who won?

Touche Ross prevailed in the case because the court found that it had no duty to disclose the information in question and that the plaintiffs failed to state a claim against the firm.

Touche Ross prevailed in the case because the court found that it had no duty to disclose the information in question and that the plaintiffs failed to state a claim against the firm.

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