CITE

    15 USC Sec. 77k                                             01/08/2008

EXPCITE

    TITLE 15 - COMMERCE AND TRADE
    CHAPTER 2A - SECURITIES AND TRUST INDENTURES
    SUBCHAPTER I - DOMESTIC SECURITIES

HEAD

    Sec. 77k. Civil liabilities on account of false registration
      statement

STATUTE

    (a) Persons possessing cause of action; persons liable
      In case any part of the registration statement, when such part
    became effective, contained an untrue statement of a material fact
    or omitted to state a material fact required to be stated therein
    or necessary to make the statements therein not misleading, any
    person acquiring such security (unless it is proved that at the
    time of such acquisition he knew of such untruth or omission) may,
    either at law or in equity, in any court of competent jurisdiction,
    sue -
        (1) every person who signed the registration statement;
        (2) every person who was a director of (or person performing
      similar functions) or partner in the issuer at the time of the
      filing of the part of the registration statement with respect to
      which his liability is asserted;
        (3) every person who, with his consent, is named in the
      registration statement as being or about to become a director,
      person performing similar functions, or partner;
        (4) every accountant, engineer, or appraiser, or any person
      whose profession gives authority to a statement made by him, who
      has with his consent been named as having prepared or certified
      any part of the registration statement, or as having prepared or
      certified any report or valuation which is used in connection
      with the registration statement, with respect to the statement in
      such registration statement, report, or valuation, which purports
      to have been prepared or certified by him;
        (5) every underwriter with respect to such security.
      If such person acquired the security after the issuer has made
    generally available to its security holders an earning statement
    covering a period of at least twelve months beginning after the
    effective date of the registration statement, then the right of
    recovery under this subsection shall be conditioned on proof that
    such person acquired the security relying upon such untrue
    statement in the registration statement or relying upon the
    registration statement and not knowing of such omission, but such
    reliance may be established without proof of the reading of the
    registration statement by such person.
    (b) Persons exempt from liability upon proof of issues
      Notwithstanding the provisions of subsection (a) of this section
    no person, other than the issuer, shall be liable as provided
    therein who shall sustain the burden of proof -
        (1) that before the effective date of the part of the
      registration statement with respect to which his liability is
      asserted (A) he had resigned from or had taken such steps as are
      permitted by law to resign from, or ceased or refused to act in,
      every office, capacity, or relationship in which he was described
      in the registration statement as acting or agreeing to act, and
      (B) he had advised the Commission and the issuer in writing that
      he had taken such action and that he would not be responsible for
      such part of the registration statement; or
        (2) that if such part of the registration statement became
      effective without his knowledge, upon becoming aware of such fact
      he forthwith acted and advised the Commission, in accordance with
      paragraph (1) of this subsection, and, in addition, gave
      reasonable public notice that such part of the registration
      statement had become effective without his knowledge; or
        (3) that (A) as regards any part of the registration statement
      not purporting to be made on the authority of an expert, and not
      purporting to be a copy of or extract from a report or valuation
      of an expert, and not purporting to be made on the authority of a
      public official document or statement, he had, after reasonable
      investigation, reasonable ground to believe and did believe, at
      the time such part of the registration statement became
      effective, that the statements therein were true and that there
      was no omission to state a material fact required to be stated
      therein or necessary to make the statements therein not
      misleading; and (B) as regards any part of the registration
      statement purporting to be made upon his authority as an expert
      or purporting to be a copy of or extract from a report or
      valuation of himself as an expert, (i) he had, after reasonable
      investigation, reasonable ground to believe and did believe, at
      the time such part of the registration statement became
      effective, that the statements therein were true and that there
      was no omission to state a material fact required to be stated
      therein or necessary to make the statements therein not
      misleading, or (ii) such part of the registration statement did
      not fairly represent his statement as an expert or was not a fair
      copy of or extract from his report or valuation as an expert; and
      (C) as regards any part of the registration statement purporting
      to be made on the authority of an expert (other than himself) or
      purporting to be a copy of or extract from a report or valuation
      of an expert (other than himself), he had no reasonable ground to
      believe and did not believe, at the time such part of the
      registration statement became effective, that the statements
      therein were untrue or that there was an omission to state a
      material fact required to be stated therein or necessary to make
      the statements therein not misleading, or that such part of the
      registration statement did not fairly represent the statement of
      the expert or was not a fair copy of or extract from the report
      or valuation of the expert; and (D) as regards any part of the
      registration statement purporting to be a statement made by an
      official person or purporting to be a copy of or extract from a
      public official document, he had no reasonable ground to believe
      and did not believe, at the time such part of the registration
      statement became effective, that the statements therein were
      untrue, or that there was an omission to state a material fact
      required to be stated therein or necessary to make the statements
      therein not misleading, or that such part of the registration
      statement did not fairly represent the statement made by the
      official person or was not a fair copy of or extract from the
      public official document.
    (c) Standard of reasonableness
      In determining, for the purpose of paragraph (3) of subsection
    (b) of this section, what constitutes reasonable investigation and
    reasonable ground for belief, the standard of reasonableness shall
    be that required of a prudent man in the management of his own
    property.
    (d) Effective date of registration statement with regard to
      underwriters
      If any person becomes an underwriter with respect to the security
    after the part of the registration statement with respect to which
    his liability is asserted has become effective, then for the
    purposes of paragraph (3) of subsection (b) of this section such
    part of the registration statement shall be considered as having
    become effective with respect to such person as of the time when he
    became an underwriter.
    (e) Measure of damages; undertaking for payment of costs
      The suit authorized under subsection (a) of this section may be
    to recover such damages as shall represent the difference between
    the amount paid for the security (not exceeding the price at which
    the security was offered to the public) and (1) the value thereof
    as of the time such suit was brought, or (2) the price at which
    such security shall have been disposed of in the market before
    suit, or (3) the price at which such security shall have been
    disposed of after suit but before judgment if such damages shall be
    less than the damages representing the difference between the
    amount paid for the security (not exceeding the price at which the
    security was offered to the public) and the value thereof as of the
    time such suit was brought: Provided, That if the defendant proves
    that any portion or all of such damages represents other than the
    depreciation in value of such security resulting from such part of
    the registration statement, with respect to which his liability is
    asserted, not being true or omitting to state a material fact
    required to be stated therein or necessary to make the statements
    therein not misleading, such portion of or all such damages shall
    not be recoverable. In no event shall any underwriter (unless such
    underwriter shall have knowingly received from the issuer for
    acting as an underwriter some benefit, directly or indirectly, in
    which all other underwriters similarly situated did not share in
    proportion to their respective interests in the underwriting) be
    liable in any suit or as a consequence of suits authorized under
    subsection (a) of this section for damages in excess of the total
    price at which the securities underwritten by him and distributed
    to the public were offered to the public. In any suit under this or
    any other section of this subchapter the court may, in its
    discretion, require an undertaking for the payment of the costs of
    such suit, including reasonable attorney's fees, and if judgment
    shall be rendered against a party litigant, upon the motion of the
    other party litigant, such costs may be assessed in favor of such
    party litigant (whether or not such undertaking has been required)
    if the court believes the suit or the defense to have been without
    merit, in an amount sufficient to reimburse him for the reasonable
    expenses incurred by him, in connection with such suit, such costs
    to be taxed in the manner usually provided for taxing of costs in
    the court in which the suit was heard.
    (f) Joint and several liability; liability of outside director
      (1) Except as provided in paragraph (2), all or any one or more
    of the persons specified in subsection (a) of this section shall be
    jointly and severally liable, and every person who becomes liable
    to make any payment under this section may recover contribution as
    in cases of contract from any person who, if sued separately, would
    have been liable to make the same payment, unless the person who
    has become liable was, and the other was not, guilty of fraudulent
    misrepresentation.
      (2)(A) The liability of an outside director under subsection (e)
    of this section shall be determined in accordance with section 78u-
    4(f) of this title.
      (B) For purposes of this paragraph, the term "outside director"
    shall have the meaning given such term by rule or regulation of the
    Commission.
    (g) Offering price to public as maximum amount recoverable
      In no case shall the amount recoverable under this section exceed
    the price at which the security was offered to the public.

SOURCE

    (May 27, 1933, ch. 38, title I, Sec. 11, 48 Stat. 82; June 6, 1934,
    ch. 404, title II, Sec. 206, 48 Stat. 907; Pub. L. 104-67, title
    II, Sec. 201(b), Dec. 22, 1995, 109 Stat. 762; Pub. L. 105-353,
    title III, Sec. 301(a)(2), Nov. 3, 1998, 112 Stat. 3235.)

AMENDMENTS

      1998 - Subsec. (f)(2)(A). Pub. L. 105-353 made technical
    amendment to reference in original act which appears in text as
    reference to section 78u-4(f) of this title.
      1995 - Subsec. (f). Pub. L. 104-67 designated existing provisions
    as par. (1), substituted "Except as provided in paragraph (2), all"
    for "All", and added par. (2).
      1934 - Subsec. (a). Act June 6, 1934, inserted last par.
      Subsecs. (b)(3), (c) to (e). Act June 6, 1934, amended subsecs.
    (b)(3) and (c) to (e).
                     EFFECTIVE DATE OF 1995 AMENDMENT
      Section 202 of title II of Pub. L. 104-67 provided that: "The
    amendments made by this title [amending this section and section
    78u-4 of this title] shall not affect or apply to any private
    action arising under the securities laws commenced before and
    pending on the date of enactment of this Act [Dec. 22, 1995]."
                      CONSTRUCTION OF 1995 AMENDMENT
      Nothing 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.

TRANSFER OF FUNCTIONS

      For transfer of functions of Securities and Exchange Commission,
    with certain exceptions, to Chairman of such Commission, see Reorg.
    Plan No. 10 of 1950, Secs. 1, 2, eff. May 24, 1950, 15 F.R. 3175,
    64 Stat. 1265, set out under section 78d of this title.