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Corporations Keyed to O’Kelley
Ernst & Ernst v. Hochfelder
Citation:
425 U.S. 185 (1976)Facts
The appellate court below has permitted continuation of a suit against Ernst & Ernst that had been based on the firm’s alleged negligence in aiding and abetting the fraud committed by the president of a small brokerage firm whose books were audited by Ernst & Ernst. The president has induced plaintiffs to invest in escrow accounts represented as yielding a high rate of return, but in fact the accounts were spurious. Soon, the fraud came to light; the plaintiff asserted that Ernst & Ernst had failed to discover the president’s rule that only he could open mail addressed to him even if it came in his absence. The plaintiffs argued that the mail rule, once discovered, would have been disclosed to the stock exchange and the SEC as an irregular procedure that prevented an effective audit of the brokerage firm; this in turn, would have led to an investigation that would have revealed the fraudulent scheme.
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