Academic journal article Journal of Accountancy

No Duty to Disclose Omitted Facts in Financial Forecast

Academic journal article Journal of Accountancy

No Duty to Disclose Omitted Facts in Financial Forecast

Article excerpt

A U.S. District Court in New Jersey held an accountant who performed a financial forecast as part of a limited partnership offering had no duty to the partnership's investors to disclose material facts about the investment.

Norman Cohen was retained by John Berg to review financial projections for the Cooper River Office Building Associates limited partnership. Cohen reviewed the projections and prepared a forecast letter for inclusion in the offering memorandum distributed to the limited partnership.

The forecast, however, failed to disclose several key facts about the property:

* It was purchased out of bankruptcy for $2.5 million.

* It was immediately sold to another company owned by Berg for $4.7 million.

* This company then sold the property to its parent company, also controlled by Berg, for $5.3 million.

The Internal Revenue Service subsequently disallowed all deductions taken by investors in the partnership because the $5.3 million purchase price did not reflect the property's fair market value. …

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