Fed. Sec. L. Rep. P 95,705 Joel Smolen v. Deloitte, Haskins & Sells

SUMMARY

Joel Smolen and Dennis and Sandra McLaughlin appeal summary judgment dis missing their action against Deloitte Has-kins & Sells (“DH & S”) for federal securities law violations, accounting malpractice, breach of fiduciary duty/constructive fraud, and negligent misrepresentation. We affirm.

FACTS

In 1975, after working for several years in the precious metals extraction industry, Appellant Joel Smolen founded Applied Molecular Technology Corp. (“Amtec”), which extracts precious metals from scrap metal. Smolen owned 90 per cent of Amtec's stock and acted as its president until it was sold in July 1982. Appellant Dennis McLaughlin bought ten per cent of the stock from Smolen shortly after Amtec’s founding.

To finance its operations, Amtec had a line of credit from Chase Manhattan Bank (“Bank”). The Bank required that Amtec submit regular “borrowing base” reports on the value of its scrap metal inventory, which was Amtec’s principal asset and which secured the Bank loans. In preparing the “borrowing base” reports, Amtec’s internal accounting staff estimated inventory value by using Amtec’s material code standards, which apparently are approximate ounces of precious metals…