Randi, an accountant, includes a false statement in a report for Social Media Marketing, Inc., that is filed with the Securities and Exchange Commission. When Theo buys stock in Social Media and loses money on the investment, he files a suit against Randi, alleging fraud under the 1934 Securities Exchange Act. To avoid liability, Randi can show that she
A) intended to defraud Social Media, not Theo.
B) intended to profit on stock trades generally, not only Theo's.
C) is an otherwise competent accountant.
D) had no knowledge that her statement was false.

Question

Randi, an accountant, includes a false statement in a report for Social Media Marketing, Inc., that is filed with the Securities and Exchange Commission. When Theo buys stock in Social Media and loses money on the investment, he files a suit against Randi, alleging fraud under the 1934 Securities Exchange Act. To avoid liability, Randi can show that she​
A) ​intended to defraud Social Media, not Theo.
B) ​intended to profit on stock trades generally, not only Theo's.
C) ​is an otherwise competent accountant.
D) ​had no knowledge that her statement was false.

Quizplus · Accepted Answer

To avoid liability for fraud under the 1934 Securities Exchange Act, Randi must prove that she had no knowledge that her statement was false. This is because the key element of fraud is the intent to deceive, and Randi's lack of knowledge of the falsity of her statement would mean she did not have this intent. None of the other options provided would be effective defenses against liability.

Randi, an Accountant, Includes a False Statement in a Report