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Question
While auditing the financial statements of Foible Corp. (which are to be included in a Securities Act registration statement), Ernie, a certified public accountant, fails to review any of Foible's journal entries, does not read the details of meetings of the board of directors, and does not even speak with the comptroller of Foible. Consequently, Ernie does not discover that substantial loans, which went unmentioned in the financial statements, had been made to Foible officers. As a result, the registration statement omits any mention of the loans. Assuming the omitted fact is a material one and that Ernie is not an officer or director of Foible, does Ernie face potential liability under Section 11 of the Securities Act of 1933? Discuss the reasons for your answer.
Answer
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