Escott v. BarChris Construction Corp.
United States District Court for the Southern District of New York
283 F.Supp. 643 (S.D.N.Y. 1968)
BarChris (defendant), a bowling alley construction company facing growing financial trouble, sold debentures to investors (plaintiffs) using a registration statement containing several false statements and omissions, including a materially inflated current-assets-to-liabilities ratio (stated as 1.9-to-1 when the true figure was 1.6-to-1). Investors sued numerous individuals connected to the statement - founders, the CFO, an attorney, an accountant, and directors, including drafters of the statement - each of whom had either taken the balance sheet's accuracy for granted or accepted answers to their questions without independently verifying them. The defendants moved to dismiss.
Whether an individual is liable for false statements or omissions of material fact in a registration statement when his investigation into their truthfulness was merely cursory.