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Deon Donato buys 1,000 common shares of Tromput Corporation in an offering of shares made pursuant to a Rule 506 exemption from the registration...
Deon Donato buys 1,000 common shares of Tromput Corporation in an offering of shares made pursuant to a Rule 506 exemption from the registration provisions of the Securities Act. Deon relies on financial statements audited by Angst & Yearn LLP (AY), a CPA firm, which statements materially overstate Tromput’s inventory and earnings. The statements overstate inventory and earning because AY staff auditors count inventory boxes but do not check to determine whether any of the boxes have inventory in them. Thirty percent of the boxes were empty. Does AY have potential liability to Deon under Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1933 or Section 12(a)ii. of the Securities Act? Why is the formation of the corporation important in this case?
