Case Study: Reeves V. Ernst & Young

In the case Reeves v. Ernst & Young there was an agricultural cooperative entitled Security the Farmer’s Cooperative of Arkansas and Oklahoma that numerous members (23,000). In order to raise money to support its general business operations, they sold to investors promissory notes that were payable upon demand. This note was showcased to all including members and non-members and noted that it was an “investment program” and offered higher interest rates. Co-op accumulated more than 1,600 people that purchased the notes, totaling $10 million but later Co-op filed for bankruptcy. There was a law suit filed by a class of holders stating that there was a violation of Section 10(b) of the Securities Exchange Act of 1934. When considering the
facts of this case referring to the security trading itself there were both member and non-member that invested in the new venture of Co-op, which implies that there was a concrete business plan behind the security offerings from Co-op. But due to the fact that for whatever reason Co-op filed bankruptcy in which losing both confidence and investment from the investors. There had been an audit done by Ernst & Young firm CPAs reviewing financial statements but that does not prove anything regarding the involvement of Ernst & Young in any type of fraudulent or deceptive activities in union with Co-op. I believe that Ernst & Young cannot be sued and defeated under the violation of Rule 10-B.