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 - Negl 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 natl 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 natl 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:

12(g)

15(d)

exchange (securities traded by a broker/dealer) e.g. - listing Securities traded interstate and > 500 Shareholders and > $10mil. total assets e.g. size Registered public offering e.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. 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. 504 No 34 Act cos, Investment or Blank Check cos. Up to $1mil aggregate (less any other 3(b) or 5 violating offerings in past 12 mos. unless 502(c) applies) Unlimited None

R. 505 No Investment cos. Up to $5mil aggregate (less any other 3(b) or 5 violating offerings in past 12 mos. unless 502(c) applies) 35 (less accredited/family members) Limited

R. 506 All Issuers Unlimited

35 sophisticated (less accredited/family members) Limited

Gun Jumping Rules R. 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

10(b) requires prelim. 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, 2

Safe Harbors in Pre-Filing Period Content -ANY statements occurring > 30 days b/f filing RS - Dont mention offering 5(c), 2(a)(10) 34 Act reporting issuers -Factual biz. info, forward looking info regularly released -Don mention offering 5(c), 2(a)(10) Non-34 Act reporting - Factual biz. info regularly released (no forward look) issuers - Can not send to those acting in investor capacity 5(c) WKSIs - Offers (treat as FWP file w/ SEC after filing RS, include legend on how to get SP) 5 Issuers -Short factual statement of proposed offering - Cant refer to UW name 5, 2 Issuers, UWs - 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. info, forward looking info regularly released -Don mention offering Non-34 Act reporting - Factual biz. info regularly released (no forward look) issuers - Can not send to those acting in investor capacity Issuers -Short factual statement of proposed offering - Cant refer to UW name Issuers, UWs - Communications b/t UW syndicate and issuer New safe harbors from 5(b)(1) Issuers, participants Any offers so long as include a SP Eligibility Issuers, participants Any ORAL offers, including roadshows, not broadcast

Rule 168 169 135 5, 2 5(b)(1) 5(b)(1)

Exempt From 5(c), 2(a)(10) 5(c), 2(a)(10) 5 5, 2 Complies with 5(b)(1) 5(b)(1)

134 164/433

2(a)(10) Treated as 10(b) Pros.

Issuers, participants Issuer, participants - but not investment or shell cos, penny stocks, or R. 405 disqualifications

- Like 135 but can include a bit more specified info - Can solicit offers if include SP and boiler plate legend - Unrestricted in what you can include BUT - Cant contain contrary info to SP on file w/ RS - Include a legend (but non-reporting and unseasoned issuers must deliver SP) - Retain for 3 yrs. - 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. (1) Regularly released information be consistent with past practices (dont 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. Permissible Items: the name of issuer, title, amount and basic terms of securities to be offered, anticipated timing of the offer,

Permitted

Registration Process Waiting Period The period after the first draft is filed until the offer goes effectivewaiting for effectiveness from SEC (going through SEC review process). -During this period, the issuer gauges investor interest. -8 says 20 days for SEC to declare statement effective but usually waived. -Can make offers but cannot accept offers. -Preliminary negotiations with underwriters 2(a)(3) Written offers (1) Only by use of Preliminary Prospectus (everything in final prospectus EXCEPT: offering price, underwriter and dealer compensation, amt of proceeds, conversion rates, call prices, and all other patterns dependent on the offering price). -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. Note: SEC wont 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, until the offering ends and the issuer no longer is in registration.

-Issuer/underwriter can sell securities to ppl who have indicated interest and based investment decision on final preliminary prospectus - because trades get done just about instantly once becomes effective. -Formal offers may be made and accepted and of course sales may be consummated. -Free Writing: As long as a report is accompanied by or preceded by a FINAL prospectus (10(a)), you can say whatever you like. 5(b)(1): After the registration statement is effective, all written offers to sell must be preceded by or

amount of offering, whether the offer is directed to a particular class of purchasers (public or private), brief purpose of offering. 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). (3) Pre-filing negotiations with underwriters 2(a)(3), such as investment banks. -Ex. Msoft can call GS in NY and set up a meeting about becoming the managing underwriter for the planned offering.

prospectus), was circulated to all investors who indicated interest. 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. (2) Rule 134 Safe Harbor: Tombstone Ad (ex. placed in WSJ) usually just identify security, state its price, and name the underwriters. 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, the address, phone number, and email address of the issuers principal offices and contact for investors, the issuers country of organization, and the geographic areas in which it conducts business; -The full title of the security and the amount being offered, which title may include a designation as to whether the securities are convertible, exercisable, or exchangeable, and as to the ranking of the securities. Shall Include: Legend (in red): A registration statement relating to these securities has been filed with the SEC but has not yet become effective. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. 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, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State. Oral offers: can say anything as long as you do not accept an offer/payment.

accompanied by a final prospectus that complies with 10 of the 33 Act (should be final prospectus, but does not matter if you send it in parts). 5(b)(2): When a security is delivered it is required that the final prospectus be delivered with the security. Final Prospectus: info normally contained in a PP plus info on offering price, underwriter compensation, amt of proceeds, and other info dependent on offering price. Legend is removed!

Impermissible

-Marketing and sale of any security. -Inconsistent Communications (an issuer cannot launch a new marketing/PR campaign if it never had one). -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), the company can do anything.

Underwriter sales efforts: In making oral sales offers, underwriter distributes preliminary prospectuses (continuously if they change) to prospective investors. Final preliminary prospectus must be almost identical (except for price change) to final prospectus (if not, send it out again and has to circulate for 48 hours before effectiveness). -Sales (accepting offers or money) or deliveries -Written offers aside from preliminary prospectuses or tombstone ads (emails, hyperlinks on websites, 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 ) Reg A (only if non-public co. and not mutual fund) can sell to unsophisticated people (only up to $1.5)

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

Reg A (only if nonpublic co. & not mutual fund)) 3(a)(9) exchange offer

3(a)(11)

a.

Intrastate Offering Exemption: 3(a)(11)/147 (only available for issuers)

Intrastate Offering Exemption Issuers only Available to (1) Residency principal place of business, where incorporated, 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. D. (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, better for issuer) (3) Are the offerings made at or about the same time? -Usually home free if made over a year apart. -Rule of Thumb: Offers/sales made 6 months before or after a 3(a)(11) probably wont be integrated b/c of 147(b)(2). (4) Is the same type of consideration to be received? (if diff consideration, 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). Resales out of state okay after 9 months (starting at date of last sale; however, 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), exemption not blown. No limit No limit Not required

Advertising

Resale

$ Limit/Aggregation # of Investors Sophistication

Non-Public Offering: 4(2) Issuers Only Available to Requirements 4(2) exemption applies if: (1) Investor is sophisticated, and (2) Investor has access to information (from position with issuer or from disclosure). No general solicitation 5(c) Advertising Resale Restricted securities someone who buys under 4(2) cannot re-sell to unsophisticated people; must meet another exemption or register in order to re-sell. $ Limit/ No limit Aggregation # of Investors No limit for 4(2), but 35 non-accredited investors under 506 Integration 6 month rule; 5 factors of integration REG D OVERVIEW Aggregate Offering Price Limitation Rule 504 [method to adhere to 3(b) exemption] $1,000,000 (12 months); aggregate with 504/505/Reg A in past 12 months. 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. Unlimited Rule 505 [method to adhere to 3(b) exemption] $5,000,000 (12 months); aggregate with 504/505/Reg A in past 12 months. 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. 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. 35 non-accredited plus unlimited accredited Note: if more than 35 nonaccredited people (not on 501 list), try 4(2) if they are sophisticated. Ex. 38 MBA grads cant do 506 b/c not on list of accredited investors (unless they are millionaires), but can do a 4(2) b/c sophisticated. Non-accredited purchaser must be sophisticated (alone or with representative); accredited

Number of Investors

Investor Qualifications

None required (b/c 3b exemption)

None required (b/c 3b exemption)

Sales Commissions Limitations on Manner of Offering/General Solicitation

Permitted Usually no general solicitation permittedbut quirk (depends on state law)

Permitted No general solicitation

investor is presumed to be sophisticated Permitted No general solicitation Note: if issuer solicits, investor has to be

personally/professionally known through a previous relationship to either the issuer

Limitations on Resale/ Registered Securities Issuer Qualifications Usually restrictedbut quirk (depends on state law) All issuers EXCEPT reporting companies, investment companies (mutual fund), 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 arent 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 arent accredited investors (if accredited but ask for info, 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

Reg. A: Mini Registration [3(b) exemption] How to do a Reg A -issuer prepares an offering circular (form I-A) [simplified disclosure doc; 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. 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 $1.5 mil) b/c Reg. D is only available to issuers/4 (1 ) for insiders but only for non-public offers. Note: Use this when: (1) selling to the public unsophisticated people (when you cannot do a 4(2) or 506); (2) if an insider is selling securities (Reg. D only available to issuers); (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 As) (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, then do a Reg. A. 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, or LATER offerings that are: registered made in reliance upon Rule 701; made pursuant to an employee benefit plan; made in reliance upon Reg. S or; made more than 6 months after the Reg. 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 theres any interest in the offering before expending time and money on a Reg. A offering (which would be a gross violation of gun jumping under 5). -Before qualified but after filing: can make offers, publish/deliver a written document to prospective purchasers or make a radio/tv broadcast. -After qualification: can make sales.

Aggregation Integration (very lenient)

Advertising

Resale $ Limit/ Aggregation

Not restricted may be resold immediately $5 mil for primary offerings; $1.5 mil for secondary offerings (i.e. by insiders) Note: If theres interest above the $5M cap, under Rule 254(d) the issuer may move out of 3(b)/Reg A, and instead do a registered offering (under 5) without running afoul of the gun jumping rules. Issuer must waits at least 30 days between the solicitation of interest and the filing of the Registration Statement. Note: If want to switch from Reg. A to a Reg. D, wait 6 months. 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. Category 1: Little or No US Connection

Who Does it Apply To? Non-U.S. issuers or securities for which there is (1) NO substantial U.S. market interest in the securities being offered (not quoted on US stock exchange or debt security with fewer than 300 US holders), OR (2) A foreign issuer (PJ says also applied to U.S. issuers) engaged in an overseas directed offering (securities of a non-US

Offering Restrictions None

Transaction Restrictions None

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), OR A foreign issuer offering debt, who has securities trading in the U.S., OR A foreign issuer offering equity who is already subject to the '34 act's reporting requirements.

-Each underwriter must agree to conform to the Reg. S safe harbor (40 day resale restrictionfor 40

days after the offering, no offers or sales may be made to US persons),

-The offering material must bear a legend that the securities have not been registered in the U.S. and may not be offered or sold in the U.S. without either registration or an exemption -Each underwriter must agree to conform to the Reg. S Safe Harbor. -The offering material must bear a legend that the securities have not been registered in the U.S. and may not be offered or sold in the U.S. without either registration or an exemption.

The issuer must require that the purchaser will not sell the securities back into the U.S. for 40 days give notice/disclaimer to the purchaser/investor (this is to prevent sham/straw man offshore transactions).

Category 3: Strong US Connection

All issuers not in category one or two.

-Equity Securities: the issuer must ensure that equity securities will not be sold into the U.S. for 1 year (done with a legend) -Debt Securities: the issuer must ensure that debt securities will not be sold into the U.S. for 40 days

Affiliate/Control People Restricted Securities of Reporting Issuers (Public Companies) -reporting under the 34 Act anything listed on NYSE and NASDAQ -Ex. Microsoft, GE - No sales for six months for restricted securities (i.e. in a 506 from Microsoft). -------No such holding period for non restricted securities (if purchase on open market/NASDAQ). - Issuer current in '34 Act filings Never falls away! - Volume Limitations - Equity securities may only be sold in "regular way brokers' transactions": no private sale, no negotiated sale, no conditioning of the market; must call up broker and sell into the anonymous market (ex. BG calls up broker and says I am sending over certificates for 10,000 shares. Broker sells into anonymous market) ---- No manner of sale limitation for debt securities. - Filing of Form 144 (one page fill in the blank notification form what is being sold?) - No sales for one year for restricted securities. -----No such holding period for non- restricted securities. - Current Public Information (15c2-11 information, which is voluntary) - Volume Limitations - Equity securities may only be sold in "regular way brokers' transactions". No manner of sale limitation for debt securities - Filing of Form 144

Non-Affiliate (for at least 3 mos) - No sales for six months for restricted securities - After six months, but under one year: Can sell only if issuer is current in public information (34 Act reporting requirements periodic disclosure) - After one year: All restrictions fall away, the securities are no longer "restricted securities" (unlimited public resales). -Ex. Jalil buys Microsoft common stock in a 506.

Restricted Securities of NonReporting Issuers (NonPublic/Private Company) -does not report under 34 Act -Ex. Acme car wash, M&M Morris -not traded on stock exchange -doesnt mean they are small!

- No sales for one year for restricted securities - After one year: All restrictions fall away, the securities are no longer "restricted securities" (unlimited public resales).

CIVIL LIABILITY UNDER 33 ACTREMEDIES AVAILABLE TO PLAINTIFFS, NOT THE SEC . 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

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). -Note: cannot sue on unapproved/preliminary prospectus. -Applies to primary and secondary offerings.

-Liability for noncompliance with registration rulesif a seller/offeror violates the registration or gunjumping requirements of section 5, securities purchasers can rescind their investment (12(a)(1)). -Liability under 12(a)(1) is absolute for any violation of a provision of section 5, such as a sale of unregistered securities, messing up an exemption, failure to deliver the required prospectus, making an illegal offer in the pre-filing period gun jumping, etc. Examples -Gun jumping (is illegal, even if offer is subsequently registered it is still a problem because it tainted the entire offering), -A failed Reg D offering, -A failed 4(2) exemption, -Failed 3(a)(9) exchange offers, -Failed 3(a)(11) intrastate offering.

-Liability for fraud in registered offeringif sales/offers in a registered offering (not subject to Sect 11 liability) are accomplished by means of materially false/misleading information, purchasers can rescind their investment (12(a)(2)). -Offer or sale by means of prospectus or oral communications containing materially false or misleading statement in a registered offering. -Does not apply to public sales in the secondary market. 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), even though there are disclosure obligations to satisfy those exemptions. -Does NOT cover preliminary prospectuses in a registered offering or even prospectus-like offering circulars in a private placement. 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 requiredonly

-Note: direct privity required.

Defendant

Remedy

(daisy chain liability allowed), but have to show that securities were bought pursuant to the registration statement (tracking). -Note: P cannot know that the statement was misleading/untrue when he bought the securities. Issuer, signatories to registration statement, directors (and imminent future directors), experts named in registration statement, 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.

someone who purchased directly form issuer, underwriter, or dealer can sue.

Statutory seller (person who solicits for personal gain) issuers, underwriters, or dealers Rescission or rescissionary damages -If it is still owned, for the consideration paid in the original transaction (get your money back) plus interest. -If the plaintiff has disposed of the security, get the difference between the price paid and the amount received in the subsequent sale N/a

Statutory seller issuers, underwriters, dealers Rescission or rescissionary damages

Limited Liability

-J&S for inside directors. -Proportional liability for unknowing outside 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. -Experts are only personally liable for the portion of the registration statement attributed to them, and not the rest of the registration statement. 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.

N/a

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. Due Diligence (see Rule 176) depends on position in the company (11b3) 2. Negative Causation 3. Whistleblower (11b1) 4. 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, but it used to be that a 12 claim had to be brought within 1 year of discovery of the cause of action, and in no case more than 3 years. Strict liability no defenses

SOX extended to 2 years discovery/5 yrs if fraud

1. 2.

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.
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. either intentionally assists or supports the primary violator or is liable b/c of a relationship with the violator. Bank Example Types of Action the guy who robbed the bank wants to rob Private & SEC a. 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, makes a given action possible, but NO the guy who looks away and doesnt want to intention of it happening/wrong place at the wrong time; get involved, a bystander/ guy who watches gets no benefit from it happening, but without him it and doesnt call the cops doesnt care if couldnt 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

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