SECURITIES ACT LIABILITY
An
important basis for modern securities regulation is the requirement of
providing full disclosure to investors in the offer and sale of securities.[1] Severe civil liabilities and criminal
penalties can result if a person does not provide such full disclosure to
investors.[2]
SECTION 11 OF THE SECURITIES ACT OF 1933, 15 U.S.C. § 77k
(1988)
Section
11 of the Securities Act provides a cause of action for fraud in the offering
of securities pursuant to a registration statement.[3]
SEC RULE 176, 17 C.F.R. § 230.176 (1990)
SECTION 12 OF THE SECURITIES ACT OF 1933, 15 U.S.C. § 77l
(1988)
Section
12(1) of the Securities Act provides a cause of action for the sale of
unregistered securities.[4]
PINTER v.
DAHL, 486
U.S. 622 (1988)
Section
12(2) of the Securities Act provides a cause of action for fraud in the sale of
securities.[5]
Section
12(2) applies to sales of securities in a public offering.[6]
GUSTAFSON v. ALLOYD
CO., INC., 513 U.S. 561 (1995)
Section
12(2) can result in damage awards without the allowance of certain offsets.[7]
SECTION 17(a) OF THE SECURITIES ACT OF 1933, 15 U.S.C. §
77q(a) (1988)
The
United States Securities and Exchange Commission can bring an enforcement
action pursuant to Section 17(a) of the Securities Act for fraud in the sale of
securities.[8]
AARON v. SEC, 446
U.S. 680 (1980)
Violations
of Section 17(a) can result in criminal penalties as well.[9]
A private right of action is not
available to investors pursuant to Section 17(a).[10]
©
2000 Harry Stansbury
[1] 15 U.S.C. §§ 78g-78h, 78o (1988); Regulation G, 12
C.F.R. § 207 (1990); Regulation T, 12 C.F.R. § 220 (1990); Regulation U, 12
C.F.R. § 221 (1990); Regulation X, 12 C.F.R. § 224 (1990); 17 C.F.R. §§
240.10b-6 to .10b-8, 240.10b-13 (1990); see DONNA S. CARPENTER & JOHN
FELONI, THE FALL OF THE HOUSE OF HUTTON 99 (1989); WILLIAM GREIDER, SECRETS OF
THE TEMPLE 311-12 (1987); 6 LOUIS LOSS & JOEL SELIGMAN, SECURITIES
REGULATION 2965-76 (3d ed. 1990); CHRIS WELLES, THE LAST DAYS OF THE CLUB
242-245 (1975); T.G. Callery & Anne H. Wright, NASD Disciplinary
Proceedings - Recent Developments, 48 Bus. Law. 791, 791-839 (1993); Jeffry L.
Davis, William C. Dale & James A. Overdahl, Using Finance Theory to Measure
Damages in Cases Involving Fraudulent Trade Allocation Schemes, 49 Bus. Law.
591, 597-610 (1994); Daniel R. Fischel & David J. Ross, Should the Law
Prohibit "Manipulation" in Financial Markets?, 105 Harv. L. Rev. 503,
507-42 (1991); William W. Foshay, Market Activities of Participants in
Securities Distributions, 45 Va. L. Rev. 907, 907-26 (1959); Fred N. Gerard
& Michael L. Hirschfeld, The Scienter Requirement Under Rule 10b-6, 46 Bus.
Law. 777, 777-780 (1991); Michael P. Jamroz, The Net Capital Rule, 47 Bus. Law.
863, 863-68 (1992); Robert L. Knauss, A Reappraisal of the Role of Disclosure,
62 Mich. L. Rev. 607, 635-40 & n.136 (1964); Donald C. Langevoort,
Information Technology and the Structure of Securities Regulation, 98 Harv. L.
Rev. 747, 751-54 (1985); William T. Lesh, Federal Regulation of
Over-the-Counter Brokers and Dealers in Securities, 59 Harv. L. Rev. 1237,
1244-1274 & n.27 (1946); David A. Lipton, A Primer on Broker-Dealer
Registration, 36 Cath. L. Rev. 899, 899-908 (1987); Henry F. Minnerop, The Role
and Regulation of Clearing Brokers, 48 Bus. Law. 841, 841-852 (1993); Art
Detman, Can Ross Perot Change Wall Street?, Dun's, Mar. 1973, at 46; Robert L.
Frome, Registration of Employee Broker Dealer, N.Y. L.J., Oct. 27, 1988, at 3;
Roberta S. Karmel, Net Capital, Customer Protection Rule Revisions, N.Y. L.J.,
Dec. 19, 1985, at 1; Carol J. Loomis, The Unbelievable Last Months of Hayden,
Stone, Fortune, Jan. 1971, at 114; Rifka Rosenwein, In‑housers Gain From
Rise In Securities Compliance Work, Manhattan Law., Mar. 1‑7, 1988, at 1;
Michael Siconolfi, Lehman Brothers Plans Pretax Charge of $30 Million for
Severance Payments, Wall St. J., Apr. 1, 1994, at A8; see, e.g., Miley v.
Oppenheimer & Co., 637 F.2d 318 (5th Cir. 1981); Arthur James Huff, SEC
Securities Exchange Act Release No. 29,017 (Mar. 28, 1991), reprinted in 48 SEC
DOCKET 10 (1991).
[2] 15 U.S.C. § 78o(b)(8)‑(9) (1988); see LOUIS LOSS, FUNDAMENTALS OF SECURITIES REGULATION 602‑24 (2d ed. 1988); ROBERT C. POZEN, FINANCIAL INSTITUTIONS: INVESTMENT MANAGEMENT 50‑57 (1978).
[3] See Donald C. Langevoort, Fraud and Deception by
Securities Professionals, 61 Tex. L. Rev. 1247, 1271‑94 (1983); Charity
Scott, Caveat Vendor: Broker-Dealer Liability Under the Securities Exchange
Act, 17 Sec. Reg. L.J. 274, 275-77 (1989); Roberta S. Karmel, Revisiting the
Shingle, Fiduciary-Duty Theories, N.Y. L.J., Oct. 16, 1986, at 1.
[4] See Note, Churning by Securities Dealers, 80 Harv. L. Rev. 869, 869-85 (1967); Richard A. Booth, New Churning Cases Add Twist To Claims for Portfolio Damages, Nat'l L.J. June 24, 1991, at 34.
[5] See Joseph I. Goldstein & L.D. Cox, Penny Stock
Markups and Markdowns, 85 Nw. U.L. Rev. 676, 676-95 (1991); Note, Insider
Trading in Junk Bonds, 105 Harv. L. Rev. 1720, 1722-25 (1992); Roberta S.
Karmel, Pegging Dealer Profits, N.Y. L.J., Aug. 20, 1987, at 1.
[6] See, e.g., Victor Brudney, Origins and Limited
Applicability of the "Reasonable Basis" or "Know Your
Merchandise" Doctrine, in FOURTH ANNUAL INSTITUTE ON SECURITIES REGULATION
239, 247-49 (Robert H. Mundheim, Arthur Fleischer, Jr. & John D. Schupper
eds., 1973).
[7] See, e.g., Martin Lipton, The Customer Suitability Doctrine, in FOURTH ANNUAL INSTITUTE ON SECURITIES REGULATION 273, 275-81 (Robert H. Mundheim, Arthur Fleischer, Jr. & John D. Schupper eds., 1973).
[8] FEDERAL SECURITIES CODE § 1416 (1980).
[9] See Ralph C. Ferrara & Diane Sanger,
Derivative Liability in Securities Law: Controlling Person Liability,
Respondeat Superior, and Aiding and Abetting, 40 Wash. & Lee L. Rev. 1007,
1007-29 (1983).
[10] See Lewis D. Lowenfels & Alan R. Bromberg,
Securities Industry Arbitrations: An Examination and Analysis, in 3 SELECTED
ARTICLES ON FEDERAL SECURITIES LAW 137, 138-164 (Franklin E. Gill ed., 1991);
Michael McGowan, See You in Arbitration, 79 A.B.A. J. 110 (May 1993); Brigid
McMenamin, Friends of the Shafted, Forbes, Apr. 26, 1993, at 185; Rob Rossi,
Brokers, Attorneys Try to Curb 'Claims Advisers', Legal Times, Nov. 22, 1993,
at 4; Michael Siconolfi, Stock Investors Win More Punitive Awards In
Arbitration Cases, Wall St. J., June 11, 1990, at A1.