Hockey Stick Inc. engaged Jessica Reynolds & Associates to assist in an initial public offering. Reynolds & Assoc. audited the financial statements and gave an unqualified opinion. One of the Reynolds Associates had discovered some misstatements, but the firm believed that they were not material in nature. Jimmy Olsen purchased some of the Hockey Stick stock on the day it was issued. Subsequent to the issue, but before the registration effective date, the misstatements became public and the stock price plummeted. Olsen lost his entire investment. Now Olsen wants to sue Jessica Reynolds & Associates for not disclosing the misstatements in the audit report.

What category of law and civil action will be most successful?

What legal defense should Reynolds & Associates use? Be sure to fully explain your responses.