securities lawyer

The Securities Act has the following liability provisions:

Section 11(a) imposes liability “in case any part of the registration statement, when such part became effective, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading.” It allows buyers to sue the parties responsible for preparing the registration statement (essentially, the issuer, the officers signing the registration statement, the directors of the issuer, underwriters, auditors and other experts (this would include credit rating agencies whose ratings are included in the registration statement for offerings of debt securities)) for losses sustained as a result of material misstatements or omissions in the registration statement. Because Section 11 imposes liability in connection with use of a registration statement, it is not applicable to exempt or private offerings.


Section 12(a)(1) imposes liability on a person who offers or sells a security in violation of the registration requirements of Section 5 of the Securities Act. Liability extends to any person who sells a security in any offering if the registration requirements are not complied with.


Section 12(a)(2) entitles buyers to rescind the purchase (or sue for damages if they have already sold the security) if the offer or sale was made using a prospectus or oral communication containing material misstatements or omissions. Historically, liability extended to any person who sold a security, whether or not those securities are exempt from registration (subject to limited exceptions for certain government exempt securities). Underwriters had operated under the assumption that they had Section 12(a)(2) liability in connection with certain exempt offerings. However, the 1995 ruling of the US Supreme Court in Gustafson v. Alloyd Co., suggests that this Section is only applicable to public offerings (513 U.S. 561 (1995)). See Section 12(a)(2) for further analysis of the impact of the Gustafson decision on exempt offerings.


Section 15 imposes liability on any person who controls the issuer and any other party subject to liability under either Section 11 or Section 12. This controlling person can be held liable jointly and severally with and to the same extent as the controlled person.


Section 17(a)(2) prohibits any person involved in the offer or sale of a security from using material misstatements or omissions to obtain money or property. Essentially, this section prohibits fraud in the offer or sale of securities.

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