b. Donalds & Company, CPAs, audited the financial statements included in the annual report submitted by Markum Securities, Inc., to the SEC. The audit was improper in several respects. Markum is now insolvent and unable to satisfy the claims of its customers. The customers have instituted legal action against Donalds based on Section 10b and Rule 10b-5 of the Securities Exchange Act of 1934. Which of the following is likely to be Donalds' best defense? 1. Section 10b does not apply to them. 2. They did not intentionally certify false financial statements. 3. They were not in privity of contract with the creditors. 4. Their engagement letter specifically disclaimed any liability to any party that resulted from Markum's fraudulent conduct. c. A CPA audited the financial statements included in a registration statement for an issuance of securities to the public. If the financial statements contained an omission that caused a purchaser of the securities to sustain damages, the 1. Securities and Exchange Act of 1934 applies. 2. purchaser must prove that (s)he was damaged by the omission, but not negligence, privity or reliance. 3. CPA will be liable only for gross negligence. 4. due diligence defense is not available to the CPA.