The critical issue in this case study is the responsibility of auditor. Should Ernst & Ernst be civilly liable for defrauded investors of First Securities Company of Chicago under Securities Exchange Act of 1934 under Rule 10b-5.

 According to Securities Exchange Act of 1934 under Rule 10b-5, plaintiff which was the defrauded investor Hochfelder needed to prove that Ernst & Ernst intentionally manipulate the escrows investors.
 Ernst & Ernst had audited First Securities Company of Chicago for two decades, Ernst & Ernst should have noticed Nay's "mail rule" policy could lead to potential internal control weakness and misleading financial statement.
 Defrauded investors were not properly informed or obtained information about the securities they invested in "escrow syndicate" account which Nay personally dealt with.
 Since Nay was the president of First Securities Company of Chicago and he only dealt with his closest friends whom trusted Nay......

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Title: First Securities Company Of Chicago
Approximate Word Count: 783
Approximate Pages: 4 (250 words per double-spaced page)

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