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United States v. Simon

United States Court of Appeals for the Second Circuit
425 F.2d 796 (2d Cir. 1969)


Facts

Continental Vending Machine Corporation (Continental) and Valley Commercial Corporation (Valley) were two corporations controlled by Harold Roth. Continental loaned $3,500,000 to Valley, which subsequently advanced the money to Roth. The loans were called Valley Receivable on Continental’s books. Carl Simon (defendant) was a senior partner with the accounting firm Lybrand, Ross Bros. & Montgomery. Simon and other outside auditors (defendants) reviewed Continental’s financial statements and found that Roth could not repay the loans made by Valley. As a result, Valley would be unable to repay Continental. The auditors asked Roth to transfer collateral to secure the debt. However, 80 percent of the collateral was Continental stock, and $1,000,000 of the collateral was subject to prior liens. The accountants were aware of these facts regarding the collateral but made no mention of the facts on Continental’s audited statements. Further, the accountants did not indicate that the term Valley Receivable represented amounts loaned to Roth. The auditors also failed to note that the amount of Valley Receivable had increased by $400,000 in the time between the close of the fiscal year and the date upon which the auditors certified the financial statements. The auditors were charged with making a false or misleading financial statement. At trial, the defendants asked for specific jury instructions, but this request was denied by the judge. The jury then found the defendants guilty. The defendants appealed.

Rule of Law

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Issue

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Holding and Reasoning (Friendly, J.)

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  • A "yes" or "no" answer to the question framed in the issue section;
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  • The procedural disposition (e.g. reversed and remanded, affirmed, etc.).

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