good morning your honour's philip cam for appellants the ruling of the district court should be reversed because our complaint adequately alleged strong inference of saw enter by demonstrating specific red flags with respect to the issue or here supervise cash position all we have to do is look at the two thousand and ten audit now prior to the two thousand and nine and two thousand and ten audit it's undisputed that the audit auditor defendants aware of a material internal control deficiency such that they could not solely rely on the representations of the company in performing its audit in connection with the company's issuing public statements  finance is from outside sources so our case is not focused on the facts about statements about the internal controls we mention that because if the auditors are aware of this weakness that they cannot rely compensate for some of these deficient cities and just did a very poor job of well you have to look at an example there's eighteen point eight million dollar transaction there the c f o of the company lied to the auditors they claim that this money which was nearly half of the revenue that the company supposedly made in two thousand and ten they said that this money was held with third party agents but it navigates you're looking at the eighteen point eight million  and isn't that an instance where d n to you have you alternately insisted that this man be booked as a marketing expense instead they did but they relied soley on the accounts of what happened from the o they never confirmed whether that cash even existed at all whether there was there was even eighteen point eight million dollars in revenue for that particular year and at the same time when they were confronted with that fact right that  balances themselves not from what they had done previously from bank statements direct from the banks and there were additional red flags at the same time there was an issue with the eight point one million dollars of supposed that deposits that were made in two thousand and nine by two thousand and ten when they were conducting their audit that eight point one million dollars wasn't refundable they had a write off most of it was about one point nine million dollars they got back they didn't ask any further questions they were duty bound when they when they saw these red flags which included the eighteen point some million dollars of cash that supposedly is now an expense i mean if you think about it doesn't even make any business sense you're a company you're going to part eighteen point eight million dollars with your third party sales agents which the company claims that they have no control over it just didn't make any sense and what was also going on at the same time from two thousand and eight two thousand and nine and two thousand and ten the company kept reinventing itself they kept changing businesses by two thousand and ten they had important you know each company can change its marketing efforts can reinvent itself they could they could however when you consider that with the red flags with respect to cash it has to raise the auditors questioning they had a duty to inquire further especially when they knew from the get go for two years two thousand and nine and two thousand and ten that they could not solely rely on the company they had to do or they should have asked the third parties if they had reached out to the third parties that supposedly had the eighteen point eight million dollars in cash they didn't exist we know at the end you know when we did the autopsy i guess when when the fraud was exposed the company had no the company had no business at been cited by both sides and even by the district court you have a situation when they knew going into it that they had to do more and they did not adjust their policies to address it in fact they adjusted their policies so it made it easier for the company to conduct a fraud they for whatever reason it's unknown for two thousand and nine and in two thousand and ten they allowed the company to verify its cash balances from documentation from the company no longer from the banks you would you would you would see a reasonable auditor and the standard is a red flag is what puts a reasonable auditor on notice that there is misconduct certainly in two thousand and ten when they were faced with these red flags they should have been like you know what maybe we should get from the cash direct from the banks they didn't do that we don't know why that into it i believe in this case this is a situation where it went beyond negligence but it was reckless deliberately reckless conduct or that they turned a blind eye because they knew from the beginning they couldn't rely on management's representations now there's there's an argument that says well we sent out accounts receivable confirmations so you know we did something the problem with that is there were four accounts receivable confirmations in two thousand and ten that were not received from the independent parties but we're see from sued by a bookkeeper and they did nothing in response to that they didn't follow up with those four account receivables confirmations and say wow ok why is this coming from your bookkeeper this is supposed to come for your customers the other thing is there were ten accounts receivable confirmations that were all returned within eleven days and one of the defendants one of the audit partner defendants in this case said that was unusual but again they didn't do anything and the thing is is that you guys confirmations one direction that there's something going on with cash we can't just accept the company's explanation the c f o of the company told the auditor's we have eighteen point eight million dollars and we want to book that as an asset and by the way it's held by these third party sales agents that we have control over with some prodding you know the record is clear yes they did ask questions they did ask questions of mr crane and caught him in a lie saying oh by the way we don't have control therefore the auditor said well you know what that needs to be a liability but the problem with that is they never confirm whether that eighteen point eight million ever existed at all now if that was the only fact in our case i would agree with the panel's doubts you know is that alone a red flag but we the eighty eight point one million dollar issue we have the accounts receivable issues and we have the fact that the company kept changing its business now there's that advanced battery case that i think has been cited involved  chinese auditor in that case the court affirmed the dismissal of the district court but there's some language in there that said well one of the arguments in the case was that the company had really high margins and that was all that was a red flag but it said you know that wasn't a red flag as to what went wrong in that case but that may have created the duty for the auditor to ask more questions based on the growing margins and i think that's that's similar to this case where you had a company that kept changing businesses abandoning you know one of its more profitable businesses to get into something else and yet still increasing revenue that should have created some suspicion that should have created a duty for them to inquire further and they did it and there were other facts i see that my my time is running out less the panel has any additional questions i'll sit down thank you you thank  eight to fourteen states that its management concluded that this is a biased management and that its management concluded that or in turn all control over financial reporting was not effective as of september thirtieth two thousand and nine due to the existence of significant deficiencies constituting material weaknesses and you've got the two thousand and ten k filing which as you know has something quite a long and same veins and i think we can assume that the n t w and the walkers read these ten k s why wasn't it reckless for them to and why wasn't reckless not reckless for them to say ok we know that you don't have good internal controls but nonetheless we're going to accept whatever you say and sign off on these financials well because  didn't accept what super they said and just signed off on the financials the complaint itself as the district court recognized showed a number of instances that there was an actual audit done and we had just had some discussion of that eighteen point eight million dollars item from the two thousand and ten audit in that case sabaidee came to them and said ok we've got these the time to say well we don't really have control over the cash and d n c w said it order for us to issue an opinion here you've got to really classify that and you've got to re profitability by increasing its expenses for twenty ten similarly with regard to the deposits with the vendors for the supposed inventory of assets d n t w said we need to see the contracts and they obtained the contracts now did you and she w perhaps not properly interpret the contracts did they not understand or not see that the refund ability provisions were not well if they've gone out and they've gotten the contracts and they've accepted and they've received the contracts they're looking at them they didn't just accept what the c f o said it may be that they should have been more skeptical the internal controls and they did procedures that were appropriate at least that they believed were appropriate in good faith to gather sufficient to insulate your clients are you i'm not saying that the boiler that totally insulates them the question is what did they do in response to the internal control deficiencies  noted in their opinion the disclosed as well in the ten k as your honor pointed out a moment ago and as the did the district court properly found that d n t w did not simply except the representations of management and again we've as we've gone through they question the eighteen point eight million dollar item the question the eight point two million dollars item the question they  statements eventually from the client but they were just taking the numbers off the client's books they did get bank statements and bank statements themselves having big questions here so the court i look so looked at this overall and said we don't have here what it is who ignored their duties we have an auditing firm that planned an audit attempted to carry out the the audit that may not have done everything they should have under the standards but attempted in going to face to audit the financial statements not a sham as many many cases hold that alone the violations of what i'm doing standards alone do not suffice to ground a strong inference of what are cited or am i correct t if it's not no bearing your honor it's certainly not in this case sufficient to support an inference of so i enter i mean it's one thing to say it may not be dispositive on its own it's another thing to say it has no bearing do you think it's that it's not dispositive on its own or that it has no bearing on trying to understand your position i would say in this case your honor the size of the fraud really does not have well i guess i would say it's not dispositive here where there are so many indications that d n c w actually challenged  ph twenty eight advanced battery technologies stevenson the meridian horizon fun case your honor which involved the made off fraud which obviously the most massive fraud of all time brief points i think the point with respect to the internal controls there was a case cited in the briefs along top southern district of new york case they did if the apple is that side of that to suggest well you know if you have internal control deficiency that in and of itself is not supportive of science or the difference between that case in this case is a long time deloitte and touche although they were not hired to pine on material internal control weaknesses they were aware of it and as a result of being aware of it they adjusted their audit procedures to be to have more scrutiny to take into account that just did not that didn't happen here so that case actually i think supports a finding of s here and lastly the comment about the made off cases in the seriousness of the fraud i think all of the made off cases are just do with will because you had a situation there were people tried to hold auditors accountable for not be any t entity they audited but some sort of