Honduras Corporation is a public corpora exchange. Honduras hired Limon Associates, CPAs, to audit Honduras' financial statements. Honduras needed the audit to obtain bank loans and to make a public stock offering so that Honduras could undertake a business expansion program. tion whose stock is traded on a national securities Before the engagement, Fred Central, Honduras' president, told Limon's managing partner that the audited financial statements would be submitted to Honduras'banks to obtain the necessary l During the course of the audit, Limon's managing partner found that Central and other Honduras officers had embezzled substantial amounts of money from the corporation. These embezzlements threatened Honduras' financial stability. When these findings were brought to Central's attention, Central promised that the money would be repaid and begged Limon not to disclose the embezzlements. loans. Central also told Limon's managing partner that several friends and relatives of Honduras' officers had been advised about the projected business expansion and proposed stock offering, and had purchased significant amounts of Honduras' stock based on this information Limon submitted an unqualified opinion on Honduras' financial statements, which did not include adjustments for or disclosures about the embezzlements and insider stock transactions. The financial statements and auditors'opinion were submitted to the banks Honduras normally does business with, including Copan Bank. Copan, relying on the financial statements and the auditors' report, loaned Honduras $2,000,000 Honduras' audited financial statements were also included in a registration statement prepared under the provisions of the Securities Act of 1933. The registration statement was filed with the SEC in conjunction with Honduras' public offering of 100,000 shares of its common stock at S100 per share. An SEC investigation of Honduras disclosed the embezzlements and the insider trading. Trading in Honduras' stock was suspended and Honduras defaulted on the Copan loan. As a result, the following legal actions were taken