Whitlow Company Is A Brokerage Firm Registered Under The

Whitlow & Company is a brokerage firm registered under the Securities Exchange Act of 1934. The act requires such a brokerage firm to file audited financial statements with the SEC annually. Mitchell & Moss, Whitlow’s CPAs, performed the annual audit for the year ended December 31, 2011, and rendered an unqualified opinion, which was filed with the SEC along with Whitlow’s financial statements. During 2011, Charles, the president of Whitlow & Company, engaged in a huge embezzlement scheme that eventually bankrupted the firm. As a result, substantial losses were suffered by customers and shareholders of Whitlow & Company, including Thaxton, who had recently purchased several shares of stock of Whitlow & Company after reviewing the company’s 2011 audit report. Mitchell & Moss’s audit was deficient; if they had complied with auditing standards, the embezzlement would have been discovered. However, Mitchell & Moss had no knowledge of the embezzlement, nor can their conduct be categorized as reckless.

Answer the following questions, setting forth reasons for any conclusions stated:
a. What liability to Thaxton, if any, does Mitchell & Moss have under the Securities Exchange Act of 1934?
b. What theory or theories of liability, if any, are available to Whitlow & Company’s customers and shareholders under common law?

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