Henry prepared a registration for the first issuance of stock of the Winzell Corporation. Henry took the assignment very seriously and spent a great deal of time preparing the statement. Two years after the statement was filed, the SEC began to

Question

investigate the company and claims that the information in Henry's statement was misleading, because some of the information given to him by the corporation was false. Henry had tried to verify the information, but was not able to do so. An investor is now suing Henry claiming that he violated the 1933 act. Is Henry liable?

Answer 1

Henry will be able to avoid liability by asserting the defense of due diligence. Due diligence requires that an accountant had, after reasonable investigation, reasonable ground to believe and did believe, at the time the registration statement became effective, that the financial statements were true, complete, and accurate. It appears from the facts that he exercised due diligence here. An accountant is not held to a strict liability standard. Because Henry was unable to verify the information that was given to him, he appears to have been justified in relying upon it.