§ 77k. — Civil liabilities on account of false registration statement.
[Laws in effect as of January 24, 2002]
[Document not affected by Public Laws enacted between
January 24, 2002 and December 19, 2002]
[CITE: 15USC77k]
TITLE 15--COMMERCE AND TRADE
CHAPTER 2A--SECURITIES AND TRUST INDENTURES
SUBCHAPTER I--DOMESTIC SECURITIES
Sec. 77k. Civil liabilities on account of false registration
statement
(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.
(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.
Section Referred to in Other Sections
This section is referred to in sections 77j, 77m, 77o, 77eee, 78u-4,
80a-24 of this title.
