Auditor's Liability to Third Party Michael H. Clott was chairman and chief executive officer of First American Mortgage Company, Inc. ( AMCO) which originated loans and sold the loans to investors , in cluding E. F. Hutton Mortgage Corp. (Hutton ). FAMCO employed Ernst & Whinney, a national CPA firm, to con duct audits of its financial statements . Hutton received a copy of the financial statements with an unqualified certification by Ernst & Whinney . Hutton bought more than 8100 million of loans from FAMCO . As a result of massive fraudulent activity by Clott, which was unde tected by Ernst & Whinney during its audit , many of the loans purchased by Hutton proved to be worthless . Ernst & Whinney had no knowledge of Clott's activi ties. Hutton's own negligence contributed to most of the losses it suffered . Hutton sued Ernst & Whinney for fraud and negligence. is ernst & whinney liable?