Academic journal article Journal of Accountancy

U.S. District Court Rules on Securities Claims

Academic journal article Journal of Accountancy

U.S. District Court Rules on Securities Claims

Article excerpt

The U.S. District Court for the District of Massachusetts dismissed aider and abettor liability claims against Price Waterhouse but sustained other securities law actions against the firm.

This case began when the plaintiffs, who were investors in Kendall Square Research Corporation, suffered losses as a result of allegedly materially misleading statements of revenue from the sale of the company's computer systems. They alleged that Price Waterhouse had access to all Kendall's financial documents and records in connection with its audits and reviews of Kendall's financial statements. The firm had issued an unqualified audit opinion on Kendall's financial statements for the company's 1992 fiscal year and also had reviewed Kendall's quarterly financial statements for the first two quarters of 1993.

The plaintiffs claimed Price Waterhouse reviewed and approved representations made in the prospectus for each of the company's 1992 and 1993 stock offerings.

In sustaining part of the plaintiffs' complaint, the court ruled that they had "alleged with sufficient particularity" that the firm knew in issuing its unqualified opinion that Kendall had improperly recognized revenue. In support of this ruling, the court noted that

1. Price Waterhouse had served as the company's independent auditor from 1989 through 1994.

2. The firm had had access to all the company's financial documents in connection with its audits and reviews. …

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