Second Circuit Decision “Squarely Holds” Accountants May Be Primarily Liable Under Federal Securities Laws

In a decision issued yesterday, the Second Circuit held that an accountant has a duty to correct its certified opinions, and may incur primary liability under § 10(b) and Rule 10b-5 if it fails to fulfill that duty in certain circumstances. The decision, written by C.J. Straub, claims to be the first in this Circuit to squarely hold that an accountant has such a duty or may be primarily liable under federal securities laws. The auditor in this case is Todman & Co., CPA, P.C., and its successor in interest, Trien, Rosenberg, Rosenberg, Weinberg, Ciullo & Fazzari, LLP.

The decision, Overton v. Todman & Co., CPAs, P.C., No. 06-2496-cv, reversed a lower court decision dismissing a securities fraud claim against Todman & Co. Plaintiffs alleged that from 1999 through 2002, Todman & Co. issued opinions certifying that the financial statements of a broker-dealer accurately reflected the broker-dealer’s fiscal health. But the auditor, Plaintiffs alleged, failed to correct those