§ Violated ’33 §12(a)(1) ’33 §11

Conduct Violation of §5 Fraud in RS

Standing Any person who bought a security from a D Strict Tracing of sec. purchased to offering w/ fraudulent RS

Defendants Any person who violated §5 Statutory Ds

Elements Violation of §5 (strict liability)

Defenses Strict Liability

Remedy Rescission or damages if P sold already Differs depending on if P sold b/f suit, after suit filed, or still owns

- Material misstatement in RS (as of effective date) - Reliance where D releases an earnings statement covering 12 mo. period after effective date - Public offering w/ §5 delivery obligation - Material misstatement in prospectus - a material misstatement/omission OR a manipulative/deceptive act - scienter - reliance (but see exceptions) - loss causation - Neg’l is enough

’33 §12(a)(2)

Fraud in prospectus

Any person who bought a security w/ a fraudulent prospectus - “In connection with” (must be a defrauded purchaser or seller)

’34 R. 10b5

Fraud in connection w/ purchase or sale

Offeror/Seller of a security w/ a fraudulent prospectus - Primary violators (aiders and abettors in SEC action)

- P had actual knowledge of fraud - D blew whistle - Loss causation - DD for all but issuers - SOL - SOL - Reasonable Care for sellers

Rescission or damages if P sold already

’33 § 17(a) ’34 § 9(a)

Fraud in offer or sale Fraudulent trading a on nat’l exchange

- SEC only

Any offeror or seller - Any person who engages in fraudulent trading

- Out of pocket expenses (typical remedy) - Disgorgement - Rescission - Benefit of the bargain Administrative, judicial - Rebutt one of the elements ?

- Bought/sold on nat’l exchange at price effected by fraud

’34 § 13

Books & Records Violation

- SEC only (if they really want to get somebody bring this) - DOJ if going criminal

Any 34 Act reporting co.

- Engaging in trading that creates the appearance of active trading or demand - Scienter (trading for the purpose of creating the false appearance) - loss causation - Not keep accurate books/records - Not devise/maintain internal accounting controls - Criminal offense if “knowingly” falsified

Strict Liability

Administrative, judicial, criminal

Section §12(a)

Trigger Registering a security on an

Discl. Requirements Periodic Filings

Termination Delisting and either:

g.§12(g) §15(d) exchange (securities traded by a broker/dealer) e. 506 All Issuers Unlimited 35 sophisticated (less accredited/family members) Limited Gun Jumping Rules R. Up to $5mil aggregate (less any other §3(b) or §5 violating offerings in past 12 mos. in assets for 3 years < 300 Shareholders AND No earlier than next fiscal year after the offering Issuers Eligible Aggregate Offering Amount Number of Purchasers Disclosure? R. unless 502(c) applies) Unlimited None R. unless 502(c) applies) 35 (less accredited/family members) Limited R. . – size Registered public offering e. 504 No 34 Act cos.listing Securities traded interstate and > 500 Shareholders and > $10mil. Investment or Blank Check cos. total assets e.g.g. – public offering Proxy Rules/Annual Report Tender Offer Rules Insider Stock Transactions (§16) Periodic Filings Proxy Rules/Annual Report Tender Offer Rules Insider Stock Transactions (§16) Periodic Filings <300 Shareholders OR < 500 Shareholders AND <$10mil in assets for 3 years Either: < 300 Shareholders OR < 500 Shareholders AND < $10mil. 505 No Investment cos. Up to $1mil aggregate (less any other §3(b) or §5 violating offerings in past 12 mos. 163A 30 Day Pre-Filing Waiting Period Post-Effective Period §4(3) SP delivery time Window Period limits §5(c) prohibits offers §5(a) prohibits sales (extends b/f 30 day window too) §5(b)(1) prohibits transmitting a prospectus unless it meets §10 §5(b)(2) prohibits transmitting securities or confirmation .

forward looking info regularly released -Don’ mention offering §5(c). info. info regularly released (no forward look) issuers .Can not send to those acting in investor capacity §5(c) WKSI’s . §2 §5(b)(1) §5(b)(1) Exempt From §5(c). §2 Safe Harbors in Pre-Filing Period Content -ANY statements occurring > 30 days b/f filing RS .Can’t refer to UW name §5.§10(b) requires prelim.Factual biz. §2(a)(10) Non-34 Act reporting . info regularly released (no forward look) issuers . UW’s .Communications b/t UW syndicate and issuer See also – Analyst safe harbors under Waiting Period Section Exempt From §5(c) Eligibility Issuers Safe Harbors in Waiting Period Content Carry overs from §5(c) safe harbors 34 Act reporting issuers -Factual biz.Don’t mention offering §5(c). UW’s . info. §2(a)(10) §5 §5.Can not send to those acting in investor capacity Issuers -Short factual statement of proposed offering .Communications b/t UW syndicate and issuer New safe harbors from §5(b)(1) Issuers. §2 Issuers. participants Any offers so long as include a SP Eligibility Issuers. participants Any ORAL offers. forward looking info regularly released -Don’ mention offering Non-34 Act reporting . §2 Complies with §5(b)(1) §5(b)(1) . §2(a)(10) 34 Act reporting issuers -Factual biz. including roadshows. include legend on how to get SP) §5 Issuers -Short factual statement of proposed offering . not broadcast Rule 168 169 135 §5.Offers (treat as FWP – file w/ SEC after filing RS.Can’t refer to UW name Issuers. prospectus w/out price of sale w/out prospectus that meets §10 §10(a) requires final prospectus w/ price Rule 163A 168 169 163 135 §5.Factual biz. §2(a)(10) §5(c).

penny stocks. participants Issuer. -§8 says 20 days for SEC to declare statement effective but usually waived. or R.but not investment or shell co’s. anticipated timing of the offer. 5(b)(1): After the registration statement is effective. the issuer gauges investor interest.Like 135 but can include a bit more specified info . -Can make offers but cannot accept offers. Permissible Items: the name of issuer. amount and basic terms of securities to be offered. call prices. -The red legend on a preliminary prospectus that says ―preliminary prospectus‖ and this is an ―incomplete prospectus‖ and it gives people an idea of what is coming but it can be changed. conversion rates. all written offers to sell must be preceded by or .‖ -Issuer/underwriter can sell securities to ppl who have indicated interest and based investment decision on final preliminary prospectus . -Preliminary negotiations with underwriters – 2(a)(3) Written offers (1) Only by use of Preliminary Prospectus (everything in final prospectus EXCEPT: offering price. and all other patterns dependent on the offering price). -Formal offers may be made and accepted and of course sales may be consummated. Note: SEC won’t grant effectiveness until it gets assurances from underwriters that the preliminary prospectus (in the form closest to final Post-Effective -When SEC declares the statement is effective. participants . 405 disqualifications .Include a legend (but non-reporting and unseasoned issuers must deliver SP) .File w/ SEC in most circumstances (see exemptions) What is it? Pre-Filing The period between when the issuer is ―in registration‖ (good faith effort of BOD to begin registration process) and the actual filing of the Registration Statement. -Free Writing: As long as a report is accompanied by or preceded by a FINAL prospectus (10(a)).Can solicit offers if include SP and boiler plate legend . .because trades get done just about instantly once becomes effective. Permitted Registration Process Waiting Period The period after the first draft is filed until the offer goes effective—waiting for effectiveness from SEC (going through SEC review process). -During this period. amt of proceeds. until the offering ends and the issuer no longer is ―in registration. (1) Regularly released information – be consistent with past practices (don’t mention offering) (2) Rule 135 Safe Harbor Press Release (will not be deemed an offer)  permits ISSUER to announce its intention to make a public offering Mandatory Items: the communication (legend) must state that an offer may be made only by a Prospectus and the information you are issuing is not an offer.Can’t contain contrary info to SP on file w/ RS . underwriter and dealer compensation. you can say whatever you like. Issuers. title.Retain for 3 yrs.Unrestricted in what you can include BUT .134 164/433 §2(a)(10) Treated as §10(b) Pros.

-The full title of the security and the amount being offered. the issuer’s country of organization. prospectus). May include: -Factual information about the legal identity and business location of the issuer limited to the following: the name of the issuer of the security. solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State. exercisable. such as investment banks. Msoft can call GS in NY and set up a meeting about becoming the managing underwriter for the planned offering. -Ex. placed in WSJ) – usually just identify security. the address. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. was circulated to all investors who indicated interest. whether the offer is directed to a particular class of purchasers (public or private). and as to the ranking of the securities. (3) Pre-filing negotiations with underwriters – 2(a)(3). Prohibited Items: name the underwriters & the offering price (b/c they are generally not obligated to underwrite until the day before the offer – underwriter can back out at any time). Legend is removed! . and other info dependent on offering price. brief purpose of offering. and the geographic areas in which it conducts business. and email address of the issuers’ principal offices and contact for investors. This communication shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any State in which such offer. amt of proceeds. accompanied by a final prospectus that complies with §10 of the ’33 Act (should be final prospectus. Final Prospectus: info normally contained in a PP plus info on offering price. state its price. but does not matter if you send it in parts). Shall Include: Legend (in red): ―A registration statement relating to these securities has been filed with the SEC but has not yet become effective. (2) Rule 134 Safe Harbor: Tombstone Ad (ex. 5(b)(2): When a security is delivered it is required that the final prospectus be delivered with the security. or exchangeable.amount of offering. underwriter compensation. phone number. which title may include a designation as to whether the securities are convertible.‖ Oral offers: can say anything as long as you do not accept an offer/payment. and name the underwriters. Note: If the final prospectus differs (materially) from the final preliminary prospectus. a new FPP must be circulated for 48 hours prior to effectiveness – effectivness will be delayed for two days.

Impermissible -Marketing and sale of any security.5) Things a reporting company can use Rule 505 4(2) [Rule 506] 3(a)(11) Things a private (nonreporting) company can use 4(2) [Rule 506] Rule 504 Rule 505 Things investment companies can use 4(2) [Rule 506] Rule 505 Reg A . the company can do anything. underwriter distributes preliminary prospectuses (continuously if they change) to prospective investors. -Gun Jumping (efforts to promote sale of stock – even indirect – prior to registration) Note: Before the BOD decides to file a registration statement (before the company is ―in registration‖). hyperlinks on websites. send it out again and has to circulate for 48 hours before effectiveness). notes that say this is a good buy) Things an issuer can use 3(a)(11) [Rule 147] 4(2) [Rule 506 and regular 4(2)] Rule 504 Things a control person can use Rule 144 (only if public co.) 4 (1 ½) Reg A (only if non-public co. and not mutual fund) – can sell to unsophisticated people (only up to $1. -Sales (accepting offers or money) or deliveries -Written offers aside from preliminary prospectuses or tombstone ads (emails. Underwriter sales efforts: In making oral sales offers. Final preliminary prospectus must be almost identical (except for price change) to final prospectus (if not. -Inconsistent Communications (an issuer cannot launch a new marketing/PR campaign if it never had one).

D. better for issuer) (3) Are the offerings made at or about the same time? -Usually home free if made over a year apart. No limit No limit Not required Advertising Resale $ Limit/Aggregation # of Investors Sophistication . (4) Is the same type of consideration to be received? (if diff consideration. (1) Are the offerings part of a single plan of financing? (what is the $ being raised for?) (2) Do they involve the same class of securities? (if diff classes. Intrastate Offering Exemption: 3(a)(11)/147 (only available for issuers) Intrastate Offering Exemption Issuers only Available to (1) Residency – principal place of business. better for issuer) (5) Are the offerings made for the same general purpose? Can advertise as long as you say it is limited to people in a certain state Note: this might screw up 4(2) offering (since allowed to solicit to unsophisticated people) or even a registered offering (gun jumping). exemption not blown. Resales out of state okay after 9 months (starting at date of last sale. 9 month period tacks back to date of issuance of purchaser subsequently transfers the securities to someone who is resident of the same state). Note: if buyer unexpectedly moves (in good faith/not known when he bought). -Rule of Thumb: Offers/sales made 6 months before or after a 3(a)(11) probably won’t be integrated b/c of 147(b)(2). however. where incorporated.Reg A (only if nonpublic co. where one resides (2) Doing Business – headquarters and 80% test Requirements Note: requirements apply to both offerees and purchasers Note: issuer must be in same state as people he offers OR sells securities to Note: underwriters do not have to be resident of the same state as the issuer Integration Use 5 factors of integration: ALSO USED FOR 4(2) and Reg. & not mutual fund)) 3(a)(9) – exchange offer 3(a)(11) a.

Non-Public Offering: 4(2) Issuers Only Available to Requirements 4(2) exemption applies if: (1) Investor is sophisticated. but 35 non-accredited investors under 506 Integration 6 month rule. No general solicitation – 5(c) Advertising Resale Restricted securities – someone who buys under 4(2) cannot re-sell to unsophisticated people.000 (12 months). 5 factors of integration REG D OVERVIEW Aggregate Offering Price Limitation Rule 504 [method to adhere to 3(b) exemption] $1. Ex. Note: no problem if I did a 4(2) or a 3(a)(11) during that period because 3(b) offerings are only relevant for aggregation. Non-accredited purchaser must be sophisticated (alone or with representative). try 4(2) if they are sophisticated.000. accredited Number of Investors Investor Qualifications None required (b/c 3b exemption) None required (b/c 3b exemption) . Note: no problem if I did a 4(2) or a 3(a)(11) during that period because 3(b) offerings are only relevant for aggregation.000 (12 months). 38 MBA grads – cant do 506 b/c not on list of accredited investors (unless they are millionaires). and (2) Investor has access to information (from position with issuer or from disclosure). aggregate with 504/505/Reg A in past 12 months. must meet another exemption or register in order to re-sell. 35 non-accredited plus unlimited accredited Note: if more than 35 nonaccredited people (not on 501 list). $ Limit/ No limit Aggregation # of Investors No limit for §4(2). but can do a 4(2) b/c sophisticated.000. aggregate with 504/505/Reg A in past 12 months. 35 non-accredited plus unlimited accredited Rule 506 [4(2) safe harbor] Unlimited (usually used by more mature businesses since no dollar cap) Note: use if offering is for more than $5 mil. Unlimited Rule 505 [method to adhere to 3(b) exemption] $5.

Sales Commissions Limitations on Manner of Offering/General Solicitation Permitted Usually no general solicitation permitted—but quirk (depends on state law) Permitted No general solicitation investor is presumed to be sophisticated Permitted No general solicitation Note: if issuer solicits. must disclose) -―PPM‖ – 506 prospectus -give all investors opp to ask questions/receive answers Not integrated if done 6 months before or after -Non-accredited must be sophisticated (RP) demonstrate that they OR or the placement agent. Restricted Available to ALL ISSUERS Notice of Sales Information Requirements/ Disclosure Requirements Integration Sophistication Not integrated if done 6 months before and 6 months after N/A their purchaser representative is capable of evaluating the merits and risks of the investment -Accredited presumed to be sophisticated . or ―blank check‖ companies Form D to SEC (15 days after first sale) No Disclosure Required Restricted All issuers except investment companies (mutual funds) Note: reporting companies can use this) Form D to SEC (15 days after first sale) Disclosure requirements of 502b to all who aren’t accredited investors (no disclosure for accredited investors) -give investors opp to ask questions/receive answers Not integrated if done 6 months before or after N/A Form D to SEC (15 days after first sale) Disclosure requirements of 502b to all who aren’t accredited investors (if accredited but ask for info. investor has to be “personally/professionally” known through a previous relationship to either the issuer Limitations on Resale/ Registered Securities Issuer Qualifications Usually restricted—but quirk (depends on state law) All issuers EXCEPT reporting companies. investment companies (mutual fund).

or LATER offerings that are: registered made in reliance upon Rule 701. A Bad-Boy: cannot do a Reg A if disqualified as a bad boy Non-Reporting US and Canadian Issuers & Insiders [no reporting companies or mutual funds] Available to Note: Use this when insider of non-reporting company wants to make small private OR public offering (up to $1. Reg. then do a Reg. (3) if you want to ―test the waters‖ (general solicitation) (4) lenient integration (5) you do a 504/505 first (only aggregated with other Reg A’s) (6) if you want to resell – they are not restricted Only integrated with Reg A offerings within the previous 12 months (not with 504/505) Note: Do a 504/505 first. A offering (which would be a gross violation of ―gun jumping‖ under § 5). made pursuant to an employee benefit plan. A: Mini Registration [3(b) exemption] How to do a Reg A -issuer prepares an ―offering circular‖ (form I-A) [simplified disclosure doc. D is only available to issuers/4 (1 ½) for insiders but only for non-public offers. A. Note: Use this when: (1) selling to the public – unsophisticated people (when you cannot do a 4(2) or 506). A offering -Pre-filing: ―Testing the Waters‖ (Rule 254): This rule allows the issuers to test the waters prior to filing offering statements to see if there’s any interest in the offering before expending time and money on a Reg. Aggregation Integration (very lenient) Advertising . made in reliance upon Reg. either registration-type or question-and-answer format] -file it with SEC local office -then SEC says the statement is ―qualified‖ Rule 251: lays out requirements of how to do a Reg. made more than 6 months after the Reg. -After qualification: can make sales.5 mil) b/c Reg. publish/deliver a written document to prospective purchasers or make a radio/tv broadcast. -Before ―qualified‖ but after filing: can make offers.Reg. D only available to issuers). (2) if an insider is selling securities (Reg. A offerings will NOT be integrated (putting offerings together that might violate the act) with either: Any PRIOR offerings that are NOT Reg A. S or.

$1. Issuer must waits at least 30 days between the solicitation of interest and the filing of the Registration Statement. under Rule 254(d) the issuer may move out of 3(b)/Reg A. No limit Not required – can sell to unsophisticated people (the public) Categories of Off-Shore Offerings # of Investors Sophistication Requirements for All: Offer made in an off-shore transaction and no directed selling efforts in US.e. market interest” in the securities being offered (not quoted on US stock exchange or debt security with fewer than 300 US holders). and instead do a registered offering (under § 5) without running afoul of the gun jumping rules. OR (2) A foreign issuer (PJ says also applied to U. A to a Reg.5 mil for secondary offerings (i. Category 1: Little or No US Connection Who Does it Apply To? Non-U. wait 6 months. by insiders) Note: If there’s interest above the $5M cap.S.Resale $ Limit/ Aggregation Not restricted – may be resold immediately $5 mil for primary offerings. issuers or securities for which there is (1) NO “substantial U. D.S.S. Note: If want to switch from Reg. issuers) engaged in an “overseas directed offering” (securities of a non-US Offering Restrictions None Transaction Restrictions None .

S. -Each underwriter must agree to conform to the Reg.issuer directed at a single country OR a US/foreign debt security denominated in non-US currency and directed at a single country) Category 2: Middle US Connection Foreign issuer offering debt (subject to the ’34 reporting requirements). -The offering material must bear a legend that the securities have not been registered in the U. without either registration or an exemption.S. for 40 days – give notice/disclaimer to the purchaser/investor (this is to prevent sham/straw man offshore transactions). and may not be offered or sold in the U. -Equity Securities: the issuer must ensure that equity securities will not be sold into the U. -The offering material must bear a legend that the securities have not been registered in the U. S Safe Harbor. and may not be offered or sold in the U. OR A foreign issuer offering debt. S safe harbor (40 day resale restriction—for 40 days after the offering.S. for 40 days . no offers or sales may be made to US persons). OR A foreign issuer offering equity who is already subject to the '34 act's reporting requirements..S. for 1 year (done with a legend) -Debt Securities: the issuer must ensure that debt securities will not be sold into the U. Category 3: Strong US Connection All issuers not in category one or two. who has securities trading in the U.S. The issuer must require that the purchaser will not sell the securities back into the U.S.S. without either registration or an exemption -Each underwriter must agree to conform to the Reg.S.

the securities are no longer "restricted securities" (unlimited public resales).Volume Limitations . Broker sells into anonymous market) ---. in a 506 from Microsoft). M&M Morris -not traded on stock exchange -doesn’t mean they are small! . the securities are no longer "restricted securities" (unlimited public resales). No manner of sale limitation for debt securities . must call up broker and sell into the anonymous market (ex.Filing of Form 144 (one page fill in the blank notification form– what is being sold?) .Issuer current in '34 Act filings  Never falls away! .After one year: All restrictions fall away.Affiliate/Control People Restricted Securities of Reporting Issuers (Public Companies) -reporting under the ’34 Act – anything listed on NYSE and NASDAQ -Ex. .No sales for six months for restricted securities (i. . no negotiated sale. NOTE: the antifraud provisions of the 33 Act apply to fraud committed by §11: Civil liability for misstatements or omissions in effective registration statement or prospectus §12(a)(1): Civil liability for offers or sales in violation of section 5 (mess up in the process of registering or finding an exemption) §12(a)(2): Civil liability for false or misleading statement in prospectus/oral communication of a registered offering . BG calls up broker and says I am sending over certificates for 10.Filing of Form 144 Non-Affiliate (for at least 3 mos) . Restricted Securities of NonReporting Issuers (NonPublic/Private Company) -does not report under ’34 Act -Ex. no conditioning of the market.After one year: All restrictions fall away.No sales for one year for restricted securities. .e. CIVIL LIABILITY UNDER 33 ACTREMEDIES AVAILABLE TO PLAINTIFFS.restricted securities.Equity securities may only be sold in "regular way brokers' transactions". Microsoft.No sales for one year for restricted securities .000 shares. -Ex.No sales for six months for restricted securities . Jalil buys Microsoft common stock in a 506.Current Public Information (15c2-11 information.After six months. -----No such holding period for non. Acme car wash. but under one year: Can sell only if issuer is current in public information (’34 Act reporting requirements – periodic disclosure) . which is voluntary) . -------No such holding period for non restricted securities (if purchase on open market/NASDAQ).Volume Limitations . GE .Equity securities may only be sold in "regular way brokers' transactions": no private sale. NOT THE SEC .No manner of sale limitation for debt securities.

even if offer is subsequently registered it is still a problem because it tainted the entire offering). -Does not apply to public sales in the secondary market. ―Purchaser‖ of securities in a registered offering Plaintiff ―Acquirer‖ of registered securities – people who bought securities pursuant to registration statement (on the primary or secondary market) -Note: direct privity NOT required ―Purchaser‖ of unregistered securities -Note: direct privity required—only -Note: direct privity required. Examples -Gun jumping (is illegal.the seller against purchasers (whereas anti-fraud provisions under 34 Act apply to purchasers and sellers) Violation Section 11 imposes liability on designated persons for materially false or misleading statements or omissions in an effective registration statement/prospectus (after you already registered). -Liability under 12(a)(1) is absolute for any violation of a provision of section 5. -Does NOT cover preliminary prospectuses in a registered offering or even ―prospectus-like‖ offering circulars in a private placement. -Offer or sale ―by means of prospectus or oral communications‖ containing materially false or misleading statement in a registered offering. -A failed Reg D offering. securities purchasers can rescind their investment (12(a)(1)). -A failed 4(2) exemption. -Applies to primary and secondary offerings. even though there are disclosure obligations to satisfy those exemptions. -Liability for noncompliance with registration rules—if a seller/offeror violates the registration or gunjumping requirements of section 5. -Note: cannot sue on unapproved/preliminary prospectus. failure to deliver the required prospectus. etc. . -Failed 3(a)(11) intrastate offering. -Liability for fraud in registered offering—if sales/offers in a registered offering (not subject to Sect 11 liability) are accomplished by means of materially false/misleading information. Note: no liability under § 12(a)(2) for a fraudulent disclosure document other than a prospectus in a registered offering. -Does not cover fraud in unregistered offerings – private placements exempt from registration (Gustafson). such as a sale of unregistered securities. making an illegal offer in the pre-filing period – gun jumping. purchasers can rescind their investment (12(a)(2)). -Failed 3(a)(9) exchange offers. messing up an exemption.

but have to show that securities were bought pursuant to the registration statement (tracking). and not the rest of the registration statement. -If the plaintiff has disposed of the security.Defendant Remedy (daisy chain liability allowed). directors (and imminent future directors). -No underwriter may be liable for damages in excess of the total price at which the securities written by him and distributed to the public were offered to the public. or dealer can sue. underwriter. underwriters Damages = price sold by issuer price at the time of suit (capped at aggregate offering price) -can be reduced if D shows negative causation. signatories to registration statement. Issuer. dealers Rescission or rescissionary damages Limited Liability -J&S for inside directors. or dealers Rescission or rescissionary damages -If it is still owned. -Experts are only personally liable for the portion of the registration statement attributed to them. -Note: P cannot know that the statement was misleading/untrue when he bought the securities. N/a . underwriters. Note: Issuer may NOT indemnify the persons liable under §11  it is against public policy! However. the issuer MAY purchase D&O liability insurance that indemnifies directors from §11 liability. -Proportional liability for unknowing outside directors. Statutory seller (person who ―solicits‖ for personal gain)  issuers. underwriters. for the consideration paid in the original transaction (get your money back) plus interest. someone who purchased directly form issuer. get the difference between the price paid and the amount received in the subsequent sale N/a Statutory seller  issuers. experts named in registration statement.

either intentionally assists or supports the primary violator or is liable b/c of a relationship with the violator. but it used to be that a §12 claim had to be brought within 1 year of discovery of the cause of action. Bank Example Types of Action ―the guy who robbed the bank‖ – wants to rob Private & SEC a. a bystander‖/ ―guy who watches gets no benefit from it happening. makes a given action possible. get involved. Director did not know the registration statement became effective (11b2) PJ thinks that Sarbanes-Oxley has extended the statute of limitations (§ 13) to no more than 2 years after the fraud was discovered and 5 years after the fraud took place. Due Diligence (see Rule 176) – depends on position in the company (11b3) 2. Whistleblower (11b1) 4. and in no case more than 3 years. but NO ―the guy who looks away and doesn’t want to intention of it happening/wrong place at the wrong time. ―the guy who drove the getaway car‖ – wants Private & SEC to help rob Only SEC (§20e of ’34 Act) Private & SEC Control People See 20(a) of ’34 Act helps and facilitates. Strict liability – no defenses SOX extended to 2 years discovery/5 yrs if fraud 1. 2. Negative Causation 3.SOL SOX extended to 2 years after fraud discovered and 5 yrs after fraud took place -Note: has to be discovered in first 5 yrs!!! Defenses No Defense for Issuers (strict liability) Defenses for Non-Issuers 1. Primary Violator Secondary Violator Aider and Abettor Private Right of Action Under ’34 Act – Who Can Be Sued? Description person who commits the act proscribed by the statute or rule. but without him it and doesn’t call the cops‖ – doesn’t care if couldn’t happen bank gets robbed or not every person who directly or indirectly controls any person liable under this provision (anyone who controls primary or secondary violators) Defense: liability arises under 20(a) ―unless the controlling person acted in good faith and did not directly or . Due diligence (reasonable care and no knowledge) – issuer has a DD defense!!! Loss causation – D can get a reduction of damages under 12(b) II.

‖ .indirectly induce the act or acts constituting the violation or cause of action.