Opinion ID: 75504
Heading Depth: 3
Heading Rank: 1

Heading: Advice Regarding Consolidation

Text: With respect to C&L’s advice to Cascade not to consolidate Conston’s financial statements with those of Cascade, Plaintiffs argue that, by rendering such advice, C&L “substantially participated” in the Cascade fraud by allowing Cascade to omit Conston’s poor financial results from its own. This allegation fails to state a claim against C&L under § 10(b) for the same reasons that Plaintiffs’ misrepresentation claim against GY&S fails: the absence of reliance. In reaching this conclusion, we note that Plaintiffs do not allege that any audit report prepared by C&L was ever contained in any of Cascade’s public documents filed with the 7 Indeed, in their initial brief on appeal, Plaintiffs appear to concede that GY&S had no independent duty to make any disclosures regarding the Cascade fraud. Therefore, their claim regarding GY&S’s failure to disclose arises solely from GY&S’s alleged prior misstatements. However, because we concluded, supra, that GY&S is not primarily liable for any alleged misstatements – because GY&S was never identified to investors and thus there was no reliance – Plaintiffs’ claim regarding GY&S’s alleged omission fails. 25 SEC. Instead, Plaintiffs allege that Cascade’s independent auditor, Bernard Levy, prepared the audit reports contained in Cascade’s public documents. Were we to permit liability to attach to C&L because of advice that it gave to Cascade, without any allegation that such advice was attributed to C&L, we would permit Plaintiffs to avoid the reliance requirement of § 10(b) claims. In light of Central Bank, we hold that C&L’s alleged substantial participation in the misrepresentation about consolidation is not enough to state a claim under § 10(b).8