PRIA, Government Policy, Made Personal

Summary

People who sell or offer a security in a way the law forbids, or who use the mail or interstate communications and give a written prospectus or spoken statement that has a serious lie or leaves out an important fact that makes it misleading, must make the buyer whole if the buyer did not know about the problem. The seller can avoid paying only if they prove they did not know and, using reasonable care, could not have known about the false or missing fact. This rule also applies to sales that might otherwise be exempt, except for two specific exemptions. A buyer can sue in court to get back what they paid with interest, minus any income received, if they return the security, or can sue for damages if they no longer own it. If the seller shows that part or all of the buyer’s loss was caused by something other than the false or missing statement, then that part of the loss cannot be recovered.

Title 15, §77l

Commerce and Trade, Source: USLM XML via OLRC

(a)In general

Any person who—

(1)offers or sells a security in violation of section 77e of this title, or

(2)offers or sells a security (whether or not exempted by the provisions of section 77c of this title, other than paragraphs (2) and (14) of subsection (a) of said section), by the use of any means or instruments of transportation or communication in interstate commerce or of the mails, by means of a prospectus or oral communication, which includes an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements, in the light of the circumstances under which they were made, not misleading (the purchaser not knowing of such untruth or omission), and who shall not sustain the burden of proof that he did not know, and in the exercise of reasonable care could not have known, of such untruth or omission,

shall be liable, subject to subsection (b), to the person purchasing such security from him, who may sue either at law or in equity in any court of competent jurisdiction, to recover the consideration paid for such security with interest thereon, less the amount of any income received thereon, upon the tender of such security, or for damages if he no longer owns the security.

(b)Loss causation

In an action described in subsection (a)(2), if the person who offered or sold such security proves that any portion or all of the amount recoverable under subsection (a)(2) represents other than the depreciation in value of the subject security resulting from such part of the prospectus or oral communication, with respect to which the liability of that person is asserted, not being true or omitting to state a material fact required to be stated therein or necessary to make the statement not misleading, then such portion or amount, as the case may be, shall not be recoverable.

Notes & Related Subsidiaries

Editorial Notes

Amendments

2000—Subsec. (a)(2). Pub. L. 106–554 substituted “paragraphs (2) and (14)” for “paragraph (2)”. 1995—Pub. L. 104–67 designated existing provisions as subsec. (a), inserted heading, inserted “, subject to subsection (b),” after “shall be liable” in concluding provisions, and added subsec. (b). 1954—Act Aug. 10, 1954, inserted “offers or” before “sells” in pars. (1) and (2).

Statutory Notes and Related Subsidiaries

Effective Date

of 1995 Amendment Pub. L. 104–67, title I, § 108, Dec. 22, 1995, 109 Stat. 758, provided that: “The

Amendments

made by this title [enacting section 77z–1, 77z–2, 78u–4, and 78u–5 of this title and amending this section and section 77t, 78o, 78t, and 78u of this title and section 1964 of Title 18, Crimes and Criminal Procedure] shall not affect or apply to any private action arising under title I of the Securities Exchange Act of 1934 [15 U.S.C. 78a et seq.] or title I of the Securities Act of 1933 [15 U.S.C. 77a et seq.], commenced before and pending on the date of enactment of this Act [Dec. 22, 1995].”

Effective Date

of 1954 AmendmentAmendment by act Aug. 10, 1954, effective 60 days after Aug. 10, 1954, see note under section 77b of this title.

Construction

of 1995 AmendmentNothing in amendment by Pub. L. 104–67 to be deemed to create or ratify any implied right of action, or to prevent Commission, by rule or regulation, from restricting or otherwise regulating private actions under Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.), see section 203 of Pub. L. 104–67, set out as a

Construction

note under section 78j–1 of this title.

§77l Civil Liabilities Arising in Connection with Prospectuses and Communications

Summary

Title 15, §77l

Notes & Related Subsidiaries

Editorial Notes

Amendments

Statutory Notes and Related Subsidiaries

Effective Date

Amendments

Effective Date

Construction

Construction

Citations & Metadata