Circumstances that make aiders and abettors be liable for fraudulent misrepresentations
Aiders and abettors are parties to an offense. They share crime intent with the person who commits the crime. They may be liable as a principal, an accessory before or after the fact. Aiders and abettors are liable for fraudulent misrepresentation when they execute some overt act, or give advice or encouragement to commit a crime. The plaintiff bears the burden of proof. He must prove that there is a material misstatement or deceptive conduct, wrongful state of mind, a connection with the purchase or sale of a security, reliance, economic loss, and loss causation (Mann & Barry, 2010).
How to determine if misstatements or omissions are material
A misstatement or omission is material if it influences an investor’s opinion on investing in a company. Material facts comprise of substantial changes in dividends or earnings and significant misstatements of asset value. The materiality of the misstatement is based on the nature of the transaction, failure to disclose material facts in the financial statement, serious violation of the Generally Accepted Accounting Principles (GAAP), and the amount involved in relation to the company’s profitability or turnover. Examples of material transactions in the case are treating running expenses as assets, overstating revenue, wrong debtor balances, changing the company’s cut off dates with an aim of inflating revenue. The presence of the material statements in financial statements influences the user’s decision on whether to engage with the company. The court came up with the following material transactions, first, is the recording of advertising purchases as revenue and capitalizing of purchase of the set top with an aim of misleading the auditors in giving their opinion on the financial statements. Also, backdating the inflated prices of the set top boxes made the entry appear as if the company entered into an agreement a month before the transaction date. These entries violate the Accounting Standards.
Conduct of suppliers
The suppliers acted unethically despite having had no contractual obligation to disclose financial information of Charter Communication. Reflectively, they were a party to fraud committed by Charter communication noting that all knew of the unethical business deal. Although it is the responsibility of management of Charter to prepare accurate financial records and to provide accurate financial information to all the stakeholders of an organization, the suppliers were a syndicate in the well ochestered move to alter financial statements of Charter Comminucations. They can confirm balance upon request by independent parties such as auditors and when they publish their own financial statements.
Effect of a contrary ruling on the global supply chain
Extention of liability to suppliers will disrupt the supply chain. The global supply chain is an interconnected relationship of buyers and sellers. A contrary ruling will taint the global supply chain since companies will not get in to informal business agreements as indicated in the rule 10b. The chain aims to move final product from producers to consumers. Producers also consume the final products. For most businesses, the ultimate goal is profit maximization. To achieve this, businesses often get into informal agreements with other businesses. The aim of these agreements is to facilitate smooth flow of work. Transactions resulting from such agreements need to be recorded in the books accounts in accordance with the accounting principle. Therefore, a extention of liability ruling will frustrate informal supply facets that determine success of the formal chain (Mann & Barry, 2010).
Reference
Mann, R., & Barry, S. (2010). Business Law and the Regulation of business. United States of America: South Western Publication.