Pete, an accountant intentionally overstates the inventory on Sonny's financial statement in an effort to show that Sonny actually made a profit. Pete than certifies the accounting statement that it complies with the General Accepted Accounting Principles (GAAP). Sonny had no knowledge that Pete intentionally overstated his inventory and believed the financial statement was a true representation of his business. Sonny takes the financial statement to the bank. In reliance on the statement, the bank loans Sonny $100,000. Six months later, Sonny goes bankrupt and is unable to pay the bank back. The Bank is interested in filing a lawsuit, select the correct statement.
- The Bank is out of luck and has no legal recourse against any party.
- The Bank has legal recourse against Pete based on strict liability.
- The Bank has no legal recourse against Sonny for fraud since he did not know that Pete intentionally misrepresented his inventory amount.
- The Bank has legal recourse against Pete based on fraud.
- The Bank has legal recourse against Sonny based on bankruptcy law.
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