A group of investors bring a class action lawsuit against the H & R Accounting Firm under SEC Rule 10b-5 of the 1934 Securities Act. Richard, an accountant with the firm, had prepared financial reports filed with the SEC for the Paymark Company. The

reports contained false information of a material fact, and this led to financial loss to the investors who relied on the reports. What is the likely result of the suit?

In general, accountants may be held civilly liable for violations of Rule 10b-5 to investors such as those bringing the suit. Rule 10b-5 is extremely broad. However, liability is imposed only if the accountant acted with scienter. An accountant is not liable under Rule 10b-5 for mere negligence or if the accountant proves he acted in good faith without knowledge that the questioned statement was false or misleading.