Securities Regulation Week 7: Liability & Secondary and Other Postoffering Distributions (Lecture Slides)

Abstract

If a registration statement contains a materially false or misleading statement, purchasers in a registered offering can recover damages from specified participants in the offering under Securities Act Section 11. This remedy is separate and apart from any civil or criminal action the government may take against the issuer or its executives. All actual purchasers of registered securities have standing to sue under Section 11. Potential defendants include those who signed the registration statement (issuer and chief executive, financial and accounting officers); all directors at the time of filing; underwriters; and any expert who consents to her opinion being used in the registration statement (e.g., accounting firm that audited the financials). The Section 5 registration requirement, however, is not intended to apply to all purchases and sales of securities. The registration requirement is intended to level the informational playing field between the issuer and investors in public offerings. The '33 Act and certain SEC rules (e.g., Rule 144) provide ways by which holders of securities can sell securities without registration. Rule 144 carves out a number of transactions from the definition of distribution under certain conditions. Without a distribution, there is no underwriter and therefore no transaction by an underwriter and therefore no need for '33 Act registration.