June 7, 2023

You are going to write an 1 introductory ?paragraph sta

Steps For the Discussion:

Please remember as we discussed in the zoom session, you are debating the DEBATE THIS prompt. You are going to write an 1 introductory paragraph stating your position then 3 supporting paragraphs, and lastly 1 conclusion paragraph (total of 5 paragraphs). Feel free to incorporate the fact pattern I gave you as an example to help prove your point. But you do not necessarily have to answer the questions posed. I want to see reasoned analysis and critical thinking. There is no right or wrong answer. Feel free to use the internet for all supporting resources, cases, journal, articles, etc… Make sure that you cite your sources.

1. Admin Law

Assume that the Securities and Exchange Commission (SEC) has a rule under which it enforces statutory provisions prohibiting insider trading only when the insiders make monetary profits for themselves. Then the SEC makes a new rule, declaring that it has the statutory authority to bring enforcement actions against individuals even if they did not personally profit from the insider trading. The SEC simply announces the new rule without conducting a rulemaking proceeding. A stockbrokerage firm objects and says that the new rule was unlawfully developed without opportunity for public comment. The brokerage firm challenges the rule in an action that ultimately is reviewed by a federal appellate court. Using the information presented in the chapter, answer the following questions.

Is the SEC an executive agency or an independent regulatory agency? Does it matter to the out-come of this dispute? Explain.
Suppose that the SEC asserts that it has always had the statutory authority to pursue persons for insider trading regardless of whether they personally profited from the transaction. This is the only argument the SEC makes to justify changing its enforcement rules. Would a court be likely to find that the SEC’s action was arbitrary and capricious under the Administrative Procedure Act (APA)? Why or why not?
Would a court be likely to give Chevron deference to the SEC’s interpretation of the law on insider trading? Why or why not?
Now assume that a court finds that the new rule is merely “interpretive.” What effect would this determination have on whether the SEC had to follow the APA’s rulemaking procedures?

Debate This:
Because an administrative law judge (ALJ) acts as both judge and jury, there should always be at least three ALJs in each administrative hearing.

Steps For the Discussion:

2. Sarbanes-Oxley Act

Superior Wholesale Corporation planned to purchase Regal Furniture, Inc., and wished to deter-mine Regal’s net worth. Superior hired Lynette Shuebke, of the accounting firm Shuebke Delgado, to review an audit that had been prepared by Norman Chase, the accountant for Regal. Shuebke advised Superior that Chase had performed a high-quality audit and that Regal’s inventory on the audit dates was stated accurately on the general ledger. As a result of these representations, Superior went forward with its purchase of Regal.
After the purchase, Superior discovered that the audit by Chase had been materially inaccurate and misleading, primarily because the inventory had been grossly overstated on the balance sheet. Later, a former Regal employee who had begun working for Superior exposed an e-mail exchange between Chase and former Regal chief executive officer Buddy Gantry. The exchange revealed that Chase had cooperated in overstating the inventory and understating Regal’s tax liability. Using the information presented in the chapter, answer the following questions.

If Shuebke’s review was conducted in good faith and conformed to generally accepted accounting principles, could Superior hold Shuebke Delgado liable for negligently failing to detect material omissions in Chase’s audit? Why or why not?
According to the rule adopted by the majority of courts to determine accountants’ liability to third parties, could Chase be liable to Superior? Explain.
Generally, what requirements must be met before Superior can recover damages under Sec-tion 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5? Can Superior meet these requirements?
Suppose that a court determined that Chase had aided Regal in willfully understating its tax liability. What is the maximum penalty that could be imposed on Chase?

Debate This:

Only the largest publicly held companies should be subject to the Sarbanes-Oxley Act.

BUSINESS LAW Today STANDARD EDITION TEXT & SUMMARIZED CASES, 12e

Roger LeRoy Miller

Miller, Business Law Today, Comprehensive Edition: Text & Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Liability of Accountants and Other Professionals

Chapter 40

Chapter Outline

40-1 Potential Liability to Clients

40-2 Potential Liability to Third Parties

40-3 Liability of Accountants under Other Federal Laws

40-4 Potential Criminal Liability

40-5 Confidentiality and Privilege

Learning Objectives (slide 1 of 2)

Under what common law theories may professionals be liable to clients?

What are the rules concerning an auditor’s liability to third parties?

How might an accountant violate the Securities Act?

What crimes might an accountant commit under the Internal Revenue Code?

Learning Objectives (slide 2 of 2)

What is protected by the attorney-client privilege?

40-1 Potential Liability to Clients

40-1a Liability for Breach of Contract

Accountants and other professionals face liability under the common law for any breach of contract.

40-1b Liability for Negligence

A duty of care existed.

That duty of care was breached.

The plaintiff suffered an injury.

The injury was proximately caused by the defendant’s breach of the duty of care.

40-1b Liability for Negligence (slide 1 of 2)

Accountant’s Duty of Care

GAAP and GAAS

Accountants must comply with generally accepted accounting principles (GAAP) and generally accepted auditing standards (GAAS).

Discovering Improprieties

Audits

An audit is a systematic inspection, by analyses and tests, of a business’s financial records by an auditor.

Qualified Opinions and Disclaimers

Unaudited Financial Statements

Defenses to Negligence

40-1b Liability for Negligence (slide 2 of 2)

Attorney’s Duty of Care

All attorneys owe a duty to provide competent and diligent representation.

Misconduct

Case Example 40.3 In re Disciplinary Proceedings against Johns (2014)

Liability for Malpractice

In malpractice cases, the plaintiff must prove that the attorney’s breach of the duty of care actually caused the plaintiff to suffer some injury.

Landmark in the Law

The SEC Adopts Global Accounting Rules

International Financial Reporting Standards (IFRS)

Will take years to completely implement

40-1c Liability for Fraud

Fraud (or fraudulent misrepresentation) involves the following elements:

A misrepresentation of a material fact.

An intent to deceive.

Justifiable reliance by the innocent party on the misrepresentation.

Actual Fraud

Case Example 40.5 Walsh v. State of Neb. (2009)

Constructive Fraud

Conduct that is treated as fraud under the law even when there is no proof of intent to defraud

40-2 Potential Liability to Third Parties (slide 1 of 3)

40-2a The Ultramares Rule

A rule regarding an accountant’s liability to third parties that is based on privity of contract

Classic Case Example 40.7 Ultramares Corp. v. Touche (1931)

The Requirement of Privity

Case Example 40.8 Toro Co. v. Krause, Kern & Co. (1987)

“Near Privity” Modification

40-2 Potential Liability to Third Parties (slide 2 of 3)

40-2b The Restatement Rule

Under the Restatement (Third) of Torts, an accountant’s liability extends to the following:

Persons for whose benefit and guidance the accountant “intends to supply the information or knows that the recipient intends to supply it.”

Persons whom the accountant “intends the information to influence or knows that the recipient so intends.”

40-2 Potential Liability to Third Parties (slide 3 of 3)

40-2c The “Reasonably Foreseeable Users” Rule

A minority of courts hold accountants liable to any users whose reliance on an accountant’s statements or reports was reasonably foreseeable.

Most courts view the Restatement’s approach as more reasonable because it allows accountants to control their exposure to liability.

40-2d Liability of Attorneys to Third Parties

40-3 Liability of Accountants under Other Federal Laws

40-3a The Sarbanes-Oxley Act

The Public Company Accounting Oversight Board

A body that oversees the audit of public companies that are subject to securities laws

Requirements for Maintaining Working Papers

Working papers: The documents used and developed by an accountant during an audit, such as notes, computations, and memoranda.

40-3b The Securities Act of 1933

Liability under Section 11

Section 11 of the act imposes civil liability on accountants for misstatements and omissions of material facts in registration statements.

The Due Diligence Standard

Other Defenses to Liability

Liability under Section 12(2)

Section 12(2) of the act imposes civil liability for fraud in relation to offerings or sales of securities.

40-3c The Securities Exchange Act of 1934 (slide1 of 2)

Liability under Section 18

Section 18 liability applies only to applications, reports, documents, and registration statements filed with the SEC.

Under Section 18, a seller or purchaser must prove one of the following:

False or misleading statement affected price

Purchaser or seller relied on false or misleading statement to make purchase or sale; not aware of inaccuracy of statement

40-3c The Securities Exchange Act of 1934 (slide 2 of 2)

Liability under Section 18

Good Faith Defense

Other Defenses

Liability under Section 10(b) and Rule 10b-5

Prohibited Conduct

It is unlawful for any person to use, in connection with the purchase or sale of any security, any manipulative or deceptive device or contrivance in contravention of SEC rules and regulations.

Extent of Liability

40-3d The Private Securities Litigation Reform Act

An auditor must use adequate procedures in an audit to detect any illegal acts of the company being audited.

If something illegal is detected, the auditor must disclose it to the company’s board of directors, the audit committee, or the SEC, depending on the circumstances.

Proportionate Liability

Aiding and Abetting

40-4 Potential Criminal Liability

40-4a Criminal Violations of Securities Laws

Accountants may be subject to criminal penalties for willful violations of the 1933 Securities Act and the 1934 Securities Exchange Act.

40-4b Criminal Violations of Tax Laws

The Internal Revenue Code makes it a felony to willfully make false statements in a tax return or to willfully aid or assist others in preparing a false tax return.

40-5 Confidentiality and Privilege

40-5a Attorney-Client Relationships

An attorney and her or his employees may not discuss the client’s case with anyone—even under court order—without the client’s permission.

40-5b Accountant-Client Relationships

The majority of states abide by the common law, which provides that an accountant must disclose information about his or her client to the court, if a court so orders.

Exhibit 40-1 Three Basic Rules of Accountant’s Liability to Third Parties

Exhibit 40–1 Three Basic Rules of Accountant’s Liability to Third Parties

RULE	DESCRIPTION	APPLICATION
Ultramares rule	Liability is imposed only if the accountant is in privity, or near privity, with the third party.	A minority of courts apply this rule.
Restatement rule	Liability is imposed only if the third party’s reliance is foreseen, or known, or if the third party is among a class of foreseen, or known, users.	The majority of courts have adopted this rule.
“Reasonably foreseeable users” rule	Liability is imposed if the third party’s use was reasonably foreseeable.	A small minority of courts use this rule.

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BUSINESS LAW Today STANDARD EDITION TEXT & SUMMARIZED CASES, 12e

Roger LeRoy Miller

Administrative Law

Chapter 37

Chapter Outline

37-1 Practical Significance

37-2 Agency Creation and Powers

37-3 The Administrative Process

37-4 Judicial Deference to Agency Decisions

37-5 Public Accountability

Learning Objectives (slide 1 of 2)

What is the difference between how statutory law and administrative law are created?

How do the three branches of government limit the power of administrative agencies?

What sequence of events must normally occur before an agency rule becomes law?

Learning Objectives (slide 2 of 2)

What is the importance of the Chevron case?

In what way has federal legislation made agencies more accountable to the public?

37-1 Practical Significance

37-1a Administrative Agencies Exist at All Levels of Government

At the national level the two basic types of administrative agencies are executive agencies and independent regulatory agencies.

Executive agencies exist within the cabinet departments of the executive branch.

37-1b Agencies Provide a Comprehensive Regulatory Scheme

37-2 Agency Creation and Powers

37-2a Enabling Legislation—An Example

Federal Trade Commission Act

Create “rules and regulations for the purpose of carrying out the Act.”

Conduct investigations of business practices.

Obtain reports from interstate corporations concerning their business practices.

Investigate possible violations of federal antitrust statutes. (The FTC shares this task with the Antitrust Division of the U.S. Department of Justice.)

Publish findings of its investigations.

Recommend new legislation.

Hold trial-like hearings to resolve certain kinds of trade disputes that involve FTC regulations or federal antitrust laws.

37-2b Agency Powers and the Constitution

Legislative Rule: An administrative agency rule that carries the same weight as a congressionally enacted statute.

The Delegation Doctrine

A doctrine, based on the U.S. Constitution, which has been construed to allow Congress to delegate some of its power to make and implement laws to administrative agencies.

Executive Controls

Legislative Controls

Judicial Controls

37-2c The Administrative Procedure Act (slide 1 of 2)

The APA sets forth rules and regulations that govern the procedures of administrative agencies follow in performing their duties.

The Arbitrary and Capricious Test

Courts typically consider whether the agency has done any of the following:

Failed to provide a rational explanation for its decision.

Changed its prior policy without justification.

Considered legally inappropriate factors.

Failed to consider a relevant factor.

Rendered a decision plainly contrary to the evidence.

37-2c The Administrative Procedure Act (slide 2 of 2)

Fair Notice

Spotlight Case Example 37.3 Federal Communications Commission v. Fox Television Stations, Inc. (2012)

37-3 The Administrative Process

Administrative process: The procedure used by administrative agencies in the administration of law.

37-3a Rulemaking

Rulemaking: The actions of administrative agencies when formally adopting new regulations or amending old ones.

Notice of the proposed rulemaking.

A comment period.

The final rule.

37-3a Rulemaking

Notice of the Proposed Rulemaking

When a federal agency decides to create a new rule, the agency publishes a notice of the proposed rulemaking proceedings in the Federal Register.

Comment Period

The Final Rule

Informal Agency Actions

Interpretive Rule: An administrative agency rule that explains how the agency interprets and intends to apply the statutes it enforces.

37-3b Enforcement

Inspections and Tests

Subpoenas

A subpoena ad testificandum is an ordinary subpoena. It is a writ, or order, compelling a witness to appear at an agency hearing.

The subpoena duces tecum compels an individual or organization to hand over books, papers, records, or documents to the agency.

Search Warrants

37-3c Adjudication

Adjudication: A proceeding in which an administrative law judge hears and decides issues that arise when an administrative agency charges a person or a firm with an agency violation.

Negotiated Settlements

Formal Complaints

Hearings

The Role of the Administrative Law Judge

Hearing Procedures

Agency Orders

Exhibit 37–3 The Process of Formal Administrative Agency Adjudication

Case 37.2

Craker v. Drug Enforcement Administration (2013)

Why should a court wait to review an agency’s order until the order has gone through the entire procedural process and can be considered final?

37-4 Judicial Deference to Agency Decisions

37-4a The Holding of the Chevron Case

Did Congress directly address the issue in dispute in the statute? If so, the statutory language prevails.

If the statute is silent or ambiguous, is the agency’s interpretation “reasonable”? If it is, a court should uphold the agency’s interpretation, even if the court would have interpreted the law differently.

37-4b When Courts Will Give Chevron Deference to Agency Interpretation

37-5 Public Accountability (slide 1 of 2)

37-5a Freedom of Information Act

The act requires the federal government to disclose certain records to any person on request, even if no reason is given for the request.

37-5b Government in the Sunshine Act

The act requires that “every portion of every meeting of an agency” be open to “public observation.” The act also requires procedures to ensure that the public is provided with adequate advance notice of the agency’s scheduled meeting and agenda.

37-5 Public Accountability (slide 2 of 2)

37-5c Regulatory Flexibility Act

Whenever a new regulation will have a “significant impact upon a substantial number of small entities,” the agency must conduct a regulatory flexibility analysis.

37-5d Small Business Regulatory Enforcement Fairness Act

The SBREFA includes various provisions intended to ease the regulatory burden on small businesses.

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BUSINESS LAW Today STANDARD EDITION TEXT & SUMMARIZED CASES, 12e

Roger LeRoy Miller

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