With the intent of restoring investor confidence following the U.S. stock market crash of 1929, Section 11 of the Securities Act of 1933 was enacted to ensure that companies would provide accurate reporting in their registration statements.
Section 11 provides for “virtually absolute” liability for all issuers, directors, officers, underwriters, and experts who intentionally make a material misstatement or omission in a registration statement for publicly offered securities and gives plaintiffs a private remedy for any false or misleading statement made in a registration statement.
Although nearly 85 years have passed since the Securities Act of 1933 was passed, scrutiny of public companies remains extremely high, and officers and directors should take notice of their potential liability for mistakes made. Federal class action securities fraud filings hit an all-time high in the first six months of 2017 when 226 securities fraud actions were initiated in federal court. Stanford Law School maintains a Securities Class Action Clearinghouse that lists all of the current class actions. Many investors believed they could rely on pending class actions to toll the statute of limitations from expiring. On June 26, 2017, the U.S. Supreme Court decided California Public Employees’ Retirement System v. ANZ Securities, Inc., No. 16-373 (U.S.), ruling that the 3-year time limit was a statute of repose and therefore is not tolled, or stopped, by a pending class action. So, if you have a section 11 claim you must file your own lawsuit or seek to intervene in a pending class action. Whether you can intervene in a pending case is complicated. To protect your right to bring a claim it may be best to file your lawsuit promptly and individually.
Elements of a Section 11 Claim
To prevail in a Section 11 claim, a plaintiff needs to prove four elements:
- The claimant bought securities, relying on the allegedly defective registration statement.
- The registration statement includes a material misrepresentation or omits a material statement.
- The claimant brought a lawsuit within the one year/three-year statute of limitations period.
- The claim is asserted against defendants who are covered by the Act.
Unlike Section 10(b) of the 1934 Securities and Exchange Act, Section 11 does not require a plaintiff to establish causation, and as long as the elements are met, the claim will likely be viable.
Section 11 also has a specific formula for calculating damages. A plaintiff is entitled to recover the amount paid for the security measured in one of three ways: the difference between the purchase price and its value at the time the lawsuit was filed; the price that the plaintiff sold the security for, as long as the sale occurred before the lawsuit commenced; or, the price at which the security was sold after suit but before final judgment.
If you think you may have a claim under Section 11 of the Securities Act of 1933, contact Murray & Murray online today.