ABSTRACT

This instructional case explores auditors' legal liability under the Securities Exchange Act of 1934 by asking students to assume the role of either the plaintiffs' (investors') or defendants' (Ernst & Young's) legal counsel. By using publicly available documents and testimony (provided on a dedicated website for this instructional case) in their arguments, students not only explore in depth one of the more egregious accounting scandals of the new millennium, but also are exposed to the plaintiff's burden of proof and the defendant's defenses in a Rule 10b-5 action. Additionally, by understanding the root causes of the fraud and why it took so long to uncover, students can better understand a number of the provisions set forth by the Sarbanes-Oxley Act of 2002. Results of a student survey after completion of the case indicate that case objectives were met. Students also report enjoying the case materials and welcoming other cases using similar types of materials.

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