CASE

5-27 (Objectives 5-5, 5-6) Part 1. Whitlow & Company is a brokerage firm registered under the Securities Exchange Act of 1934. The act requires such a brokerage firm to file audited financial statements with the SEC annually. Mitchell & Moss, Whitlows CPAs, performed the annual audit for the year ended December 31, 2011, and rendered an unqualified opinion, which was filed with the SEC along with Whitlows financial statements. During 2011, Charles, the president of Whitlow & Company, engaged in a huge embezzlement scheme that eventually bankrupted the firm. As a result, substantial losses were suffered by customers and shareholders of Whitlow & Company, including Thaxton, who had recently purchased several shares of stock of Whitlow & Company after reviewing the companys 2011 audit report. Mitchell & Mosss audit was deficient; if they had complied with auditing standards, the embezzlement would have been discovered. However, Mitchell & Moss had no knowledge of the embezzlement, nor can their conduct be categorized as reckless.

Question. Based on the facts outlined in the case, what liability, if any, does Mitchell & Moss have if Thaxton brought suit based on the Securities Exchange Act of 1934?