§77k Civil Liabilities on Account of False Registration Statement

Summary

If a company’s registration statement was officially in effect and it had a false or missing important fact, anyone who bought the security can sue, unless the buyer knew about the problem when they bought. Buyers can sue the people who signed the statement; company directors or partners who were in those roles when the part was filed; people named as about-to-be directors or partners with their consent; experts like accountants, engineers, or appraisers who were named as preparing or certifying parts or reports used; and underwriters. If the buyer bought the security after the issuer put out an earnings statement covering at least twelve months that began after the registration became effective, the buyer must show they relied on the registration or did not know about the omission; they do not have to prove they read it. People (other than the issuer) can avoid responsibility by proving one of a few things: they resigned or stopped the role and told the SEC and the company before the part became effective; they acted quickly to resign and give public notice if it became effective without their knowledge; or they did a reasonable investigation and honestly believed the statements were true (the standard is what a careful person would do managing their own property). If someone became an underwriter later, the part is treated as effective for them when they became an underwriter. Damages are the difference between what was paid (not more than the public offering price) and the security’s value or market sale price as described in the law, but cannot include losses not caused by the bad statement and cannot exceed the public offering price. Courts may require payment guarantees and can award costs and fees if a suit or defense had no merit. Liability can be shared, and a person who pays can seek contribution from others unless the other committed fraud. Outside director rules and the term “outside director” are set by SEC rules.