## Facts

- Equity Funding Corporation of America was a public company that increased stock value by issuing false financial statements overstating income and claiming fictitious assets.
- Julian S. H. Weiner, Marvin A. Lichtig, and Solomon Block were accountants involved in Equity Funding’s outside audits over multiple years.
- Weiner, a partner, directed Equity Funding audits from 1961 to 1973.
- Lichtig supervised field work for five audits, later joined Equity Funding as an executive, and signed registration statements as principal accounting officer.
- Block supervised field work for four audits after replacing Lichtig.
- Trial evidence indicated major audit failures, including no audit manuals, inadequate internal-controls review, and noncompliance with account-confirmation standards.
- Defendants were charged with securities-related offenses, including securities fraud and willfully making false statements to the SEC and stock exchanges in filings reflecting falsified information.

## Issues

1. Whether jury instructions on acting “willfully and knowingly” improperly permitted conviction based on deviations from GAAP/GAAS and on “reckless” or “deliberate indifference” to truth or falsity.
2. Whether alleged co-conspirator statements were properly admitted under the co-conspirator exception despite no conspiracy count, including whether independent proof of a conspiracy and defendants’ connection existed.
3. Whether knowledge held by other government entities or attorneys should be imputed to the prosecution, and whether any nondisclosure or delay warranted relief.

## Decision

- The Ninth Circuit affirmed the convictions in a per curiam decision.
- The court upheld the mens rea instructions allowing the jury to consider departures from GAAP/GAAS and reckless or deliberate disregard for truth as bearing on “willfully and knowingly.”
- The court upheld admission of co-conspirator hearsay upon a foundation showing statements were in furtherance of and during the conspiracy, supported by independent proof of the conspiracy and defendants’ participation.
- The court rejected broad imputation of knowledge across government components, noting that assuming a free flow of information within government agencies is often unrealistic.

## Legal Principles

- In securities-fraud prosecutions involving professional auditors, substantial departures from GAAP/GAAS and reckless or deliberate disregard for truth may support a finding that a defendant acted “willfully and knowingly,” beyond mere negligence.
- Co-conspirator statements are admissible if the proponent shows: (1) the statement was in furtherance of the conspiracy, (2) made during the conspiracy, and (3) supported by independent proof of the conspiracy and the defendant’s connection to it.
- Admission of co-conspirator statements does not require a conspiracy charge in the indictment and is not limited to trials where alleged conspirators are co-defendants.
- Courts may decline to treat the entire government as a single unit for attributing knowledge to prosecutors in disclosure disputes; imputation depends on context rather than blanket assumptions.

## Conclusion

The Ninth Circuit affirmed the accountants’ securities-fraud convictions arising from audits of a company engaged in pervasive financial falsification, holding that instructions permitting consideration of GAAP/GAAS deviations and reckless disregard for truth were proper, that co-conspirator statements were admissible with the required foundational showing even without a conspiracy charge, and that broad imputation of knowledge across government agencies was unwarranted on the record presented.


United States v. Weiner, 578 F.2d 757 (9th Cir. 1978)