A foreign private issuer becomes exposed to liability under
the US federal securities laws in a variety of ways when it
offers or lists its securities in the US. This liability can be
civil or, in certain circumstances, criminal. Although
litigation by private plaintiffs is more common, the SEC (and,
in the case of criminal matters, the US Department of Justice)
can initiate lawsuits, administrative proceedings and
investigations. We summarize below the key areas of
Registration Section 5 of the Securities Act
Section 5 of the Securities Act effectively requires every
US offer and sale of securities to be either registered with
the SEC or made pursuant to an available exemption from
registration. The terms "offer" and "sale" in the Securities
Act are broadly construed. For example, an offer includes any
attempt to dispose of a security for value. As a result, publicity in
the US about an impending offering, website disclosure of the
offering or even an e-mail communication to "friends and
family" announcing an offering can constitute an unregistered
offer in violation of Section 5.
Violations of Section 5 can give rise to liability, as
discussed below. They can also lead to the delay (or even
abandonment) of a securities offering if the SEC imposes a
cooling-off period. As a result of these onerous remedies, it
is critical to control publicity and comply carefully with the
requirements for any applicable exemptions from Section 5
Under Section 12(a)(1) of the Securities Act, an investor
who buys securities issued in transactions violating Section 5
can rescind the sale and recover his or her purchase price
(plus interest, less any amount received on the securities). If
the investor no longer owns the securities, he or she can
recover damages equal to the difference between the purchase
and the sale price of the securities (again, plus interest,
less any amount received on the securities).
Section 12(a)(1) imposes strict liability, and an investor
is not required to demonstrate any causal link between his or
her damages and the violation of Section 5. However, in order to be
liable, a defendant must be a seller that is, a person
who successfully solicits the purchase, motivated at least in
part by financial interest and the plaintiff must
actually have bought the securities from that defendant.
(i) What is material?
The various anti-fraud provisions of the Securities Act and
the Exchange Act discussed below impose liability for material
misstatements or omissions in connection with an offer or sale
of securities. The fundamental test for "materiality" is
whether there is a substantial likelihood that a reasonable
investor would consider the misstatement or omission important
in deciding whether or not to purchase or sell a
the US Supreme Court has explained, "there must be a
substantial likelihood that the disclosure of the omitted fact
would have been viewed by the reasonable investor as having
significantly altered the 'total mix' of information made
The determination of materiality is a mixed question of law
and fact, and
the SEC has made clear that there is no bright-line
quantitative test for materiality. In particular, the SEC has
affirmatively rejected exclusive reliance on a commonplace rule
of thumb that had developed in the preparation of financial
statements, under which matters causing a numerical impact of
less than 5% were generally not considered material. Although the SEC addressed
this point in the context of preparing of financial statements,
its guidance should also be taken into account in the
preparation of narrative disclosure.
The SEC has pointed to several qualitative factors that
should be considered in assessing materiality, and that could
render a quantitatively minor misstatement material:
- whether the misstatement arises from an item capable of
precise measurement or whether it arises from an estimate
and, if so, the degree of imprecision inherent in the
- whether the misstatement masks a change in earnings or
- whether the misstatement hides a failure to meet
analysts' consensus expectations;
- whether the misstatement changes a loss into income or
- whether the misstatement concerns a segment or other
portion of the issuer's business that has been identified as
playing a significant role in the issuer's operations or
- whether the misstatement affects the issuer's compliance
with regulatory requirements;
- whether the misstatement affects the issuer's compliance
with loan covenants or other contractual requirements;
- whether the misstatement has the effect of increasing
management's compensation for example, by satisfying
requirements for the award of bonuses or other forms of
incentive compensation; or
- whether the misstatement involves concealment of an
In adopting Regulation FD, the SEC indicated that the
following subjects should be carefully reviewed to determine
whether they are material:
- earnings information;
- mergers, acquisitions, tender offers, joint ventures, or
changes in assets;
- new products or discoveries, or developments regarding
customers or suppliers (for example, the acquisition or loss
of a contract);
- changes in control or in management;
- change in auditors or auditor notification that the
issuer may no longer rely on an auditor's audit report;
- events regarding the issuer's securities for
example, defaults on senior securities, calls of securities
for redemption, repurchase plans, stock splits, or changes in
dividends, changes to the rights of security holders, public
or private sales of additional securities; and
- bankruptcies or receiverships.
(ii) Rule10b-5 Purchase or sale of securities
Section 10(b) of the Exchange Act and Exchange Act Rule
10b-5 provide a broad (and heavily litigated) basis for
liability in securities transactions. Rule 10b-5 prohibits:
- employing "any device, scheme, or artifice to
- making "any untrue statement of material fact" or
omitting "to state a material fact necessary in order to make
the statements made, in the light of the circumstances under
which they were made, not misleading;" or
- engaging in any "act, practice, or course of business
which operates or would operate as a fraud or deceit."
(a) Elements of a claim under Rule 10b-5
The elements of a claim under Rule 10b-5 are:
- a misrepresentation or omission;
- of a material fact;
- made with scienter - that is, either intent to
deceive, manipulate or defraud, or recklessness (beyond
- upon which the plaintiff relied; and
- which caused the injury.
Rule 10b-5 requires that the alleged fraud must have been in
connection with the purchase or sale of securities in
other words, that there was some nexus but not necessarily a
close relationship. As a
consequence, a private plaintiff must show that he or she
actually purchased or sold stock; a plaintiff cannot succeed
on a claim that he or she would have sold had the truth been
known. But Rule 10b-5 does not require privity between the
defendant and the plaintiff, and
accordingly a plaintiff need not show that he or she actually
bought securities from the person who made the misleading
(b) Scope of Rule 10b-5
Rule 10b-5 is not limited to public offerings of securities,
and applies to unregistered transactions and secondary market
trading. In addition, Rule 10b-5 covers oral and written
statements, whether or not relating to a registration statement
or prospectus. These
would potentially include statements made:
- in an offering memorandum for a Rule 144A offering;
- during a press conference or an interview, or in a press
- in an annual report on Form 20-F; and
- in a document submitted on Form 6-K.
In addition while an issuer is generally not liable for the
statements of others, there may be exceptions if, for example,
a corporate insider participates sufficiently in the
preparation of an analyst's report or circulates the report to
(c) Insider trading
Insider trading is also prosecuted under Rule 10b-5.
Generally speaking, Rule 10b-5 prohibits a person from buying
or selling securities on the basis of material non-public
information in violation of a duty owed to the shareholders of
the issuer or where the information has been otherwise
10b-5 imposes an obligation to disclose (or abstain from
- corporate insiders, such as directors, officers and
controlling shareholders, who owe a fiduciary duty to the
- temporary insiders, such as lawyers, accountants or
- outsiders who "misappropriate" confidential information
for trading purposes in breach of a duty owed to the source
of the information.
Bear in mind that a person can be liable under Rule 10b-5
even if he or she did not actually trade on the material
non-public information, but instead passed it to a third party
(a practice sometimes known as "tipping"). In addition to the
"tipper" (the person who discloses the information), a "tippee"
(the person to whom the information is disclosed and who had
reason to know the information came from an insider who had
violated a duty) may also be liable under Rule 10b-5 if he or
she trades on the basis of the tipped information.
(d) Damages under Rule 10b-5
Violations of Rule 10b-5 can lead to rescission or
damages. Damages for violations of
Rule 10b-5 in private actions comprise a purchaser's
out-of-pocket loss, essentially limited to the difference
between the purchase or sale price the plaintiff paid or
received and the mean trading price of the security during the
90-day period beginning on the date on which the information
correcting the misstatement or omission that is the basis for
the action is disseminated to the market. Civil or criminal
penalties (including imprisonment, fines or disgorgement
orders) and injunctions and administrative proceedings are also
Punitive damages are, however, not available under Rule
(iii) Section 11 of the Securities Act registered
Section 11(a) of the Securities Act imposes liability if any
part of a registration statement, at the time it 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."
Section 11 liability only covers statements made in a
registration statement, and does not reach other documents that
are not considered part of a registration statement (such as
road show materials, free writing prospectuses or research
addition, Section 11 does not extend to unregistered
transactions, since these do not involve a "registration
The trend in the case law is to allow
secondary-market purchasers who can trace their
securities to the offering to bring claims under
Section 11, at least to the extent that the only shares
in the market are those subject to the registration
A Section 11 claim can be brought against:
- each person who signed the registration statement,
including the issuer and members of management;
- each member of the issuer's board of directors, or
similar governing body, regardless of whether he or she
signed the registration statement;
- any expert named as responsible for a portion of the
registration statement, such as an issuer's auditors;
- each underwriter.
Issuers are strictly liable under Section 11. Potential
defendants other than the issuer have statutory defences to
Section 11 liability, by virtue of Section 11(b)(3):
- Due diligence defence: in the case of a
non-expert with respect to the non-expertized portions of the
registration statement, or in the case of an expert with
respect to the expertized portions (for example, the
financial statements that include the auditors' opinion), a
defendant must show that he or she had, after reasonable
investigation, reasonable grounds to believe and did believe
that the included information was true and that no material
facts were omitted;
- Reliance defence: in the case of a non-expert
with respect to expertized portions of the registration
statement, a defendant must show he or she had no reasonable
ground to believe, and did not believe, that the registration
statement contained a material misstatement or
Damages for violation of Section 11 are generally limited
- the difference between the price paid for a security and
its value at the time a plaintiff brings a lawsuit;
- if the security has already been sold at the time a
lawsuit is brought, the amount paid for the security, less
the price at which the security was sold in the market;
- if the security was sold after the lawsuit was brought
but before judgment, the lesser of (i) the amount the
plaintiff paid for the security, less the price at which the
security was sold in the market, or (ii) the amount the
plaintiff paid for the security, less the value of the
security as of the time the suit was brought.
Punitive damages are not available under Section 11.
(iv) Section 12(a)(2) of the Securities Act
Section 12(a)(2) of the Securities Act imposes liability on
any person who offers or sells a security by means of a
prospectus, or any oral communication, which contains "an
untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements, in the
light of the circumstances under which they were made, not
misleading." Section 12(a)(2) overlaps with Section 11, but
covers oral statements, free writing prospectuses and
statements in a prospectus, rather than the registration
statement alone (of which the prospectus is a part). The US
Supreme Court has interpreted the reference to "prospectus" in
Section 12(a)(2) as a term of art meaning a prospectus in
connection with a public offering under the Securities Act. As
a result, it has ruled that Section 12(a)(2) does not apply to
private unregistered transactions, secondary offerings or
secondary market transactions.
Section 12(a)(2) provides a statutory due diligence defence
if the seller can show he or she "did not know, and in the
exercise of reasonable care could not have known", of the
material misstatements or omissions.
Under Section 12(a)(2), a person who buys securities on the
basis of a prospectus that contains a material misstatement or
omission like a person who buys securities issued in
violation of Section 5 of the Securities Act can rescind
the sale and recover his or her purchase price (plus interest,
less any amount received on the securities). And if the
investor no longer owns the securities, he or she can recover
damages equal to the difference between the purchase and the
sale price of the securities (again plus interest, less any
amount received on the securities).
(a) Rule 159A issuer as seller under Section
As with Section 12(a)(1), to be liable under Section
12(a)(2) a defendant must be a seller that is, a person
who successfully solicits the purchase, motivated at least in
part by financial interest. 1933
Act Rule 159A provides that for purposes of Section 12(a)(2),
regardless of the underwriting method used to sell securities,
the term seller will include the issuer of the
securities sold to a person as part of the initial distribution
of those securities. Under
Rule 159A, the issuer will be deemed to offer or sell
securities by means of:
- any preliminary prospectus or prospectus required to be
filed under Rule 424;
- any free writing prospectus relating to the offering
prepared by or on behalf of the issuer or used or referred to
by the issuer;
- the portion of any other free writing prospectus relating
to the offering containing material information about the
issuer or its securities provided by or on behalf of the
- any other communication that is an offer made by or on
behalf of the issuer.
For purposes of Rule 159A, information and communications
are provided "by or on behalf" of an issuer if an issuer or an
agent or a representative of the issuer authorizes or approves
the information or communication before use. However, underwriters and
dealers will not be treated as agents or representatives of the
issuer (and hence will not be deemed to be acting by or on
behalf of the issuer) solely by virtue of acting as offering
participants. As a result, they will not be deemed to be a
seller for Section 12(a)(2) purposes under these
Rule 159A does not cover purchasers of the issuer's
securities who buy in the aftermarket.
(b) Rule 159 timing of the investment decision
under Section 12(a)(2)
According to the SEC, an investor makes an investment
decision at the time of the contract of sale for securities
(that is, at the time the offering is priced in most
underwritten deals). In
turn, Rule 159 provides that, for purposes of determining
whether a prospectus or oral statement included a material
misstatement or omission at the time of the contract of sale
under Section 12(a)(2) (and Section 17(a)(2)), "any information
conveyed to the purchaser only after such time of sale" will
not be taken into account.
The key implication of Rule 159 is that Section 12(a)(2)
(and Section 17(a)(2)) liability will be determined by
reference to the total package of information conveyed to the
purchaser at or before the time of sale. Accordingly, a
preliminary prospectus, a free writing prospectus or an oral
communication at a road show may give rise to liability under
Section 12(a)(2) (in suits by private plaintiffs) (and Section
17(a)(2) (in suits by the SEC)), even if later corrected or
supplemented in a final prospectus that is filed or delivered
after pricing. In other words, changes made to the disclosure
after pricing and included in the final prospectus will not
provide a liability shield for the issuer or its underwriters.
The critical inquiry will be whether the preliminary
prospectus, as supplemented at the time of pricing (including
by way of one or more free writing prospectuses), included an
untrue statement of material fact, or omitted to state a
material fact necessary to make the statements, in light of the
circumstances under which they were made, not misleading.
(v) Liability for free writing prospectuses
(a) Free writing prospectuses are not part of the
registration statement but are subject to 12(a)(2)
A free writing prospectus is not considered to be part of a
registration statement. As a
result, it will not be subject to liability under Section 11.
But every free writing prospectus, regardless of whether it is
filed, is subject to liability under Section 12(a)(2) (and
other anti-fraud provisions of the federal securities laws,
such as Section 17(a)(2) in the case of actions by the SEC). In
addition, the SEC has explained that statements at road shows
are subject to Section 12(a)(2) liability (to the extent the
statements are an offer of securities), regardless of whether
the road show constitutes a free writing prospectuses. In other words, statements
at live road shows will be subject to Section 12(a)(2).
(b) Cross-liability issues Rule 159A
A key question for underwriters is which free writing
prospectuses subject them to liability. To address this issue,
1933 Act Rule 159A provides that an offering participant will
not be considered to offer or sell securities to a particular
person "by means of" a free writing prospectus for Section
12(a)(2) purposes unless:
- the offering participant used or referred to the free
writing prospectus in offering or selling securities to that
- the offering participant sold securities to that person
and participated in the planning for the use of the free
writing prospectus that was used by another offering
participant to sell securities to that person; or
- the offering participant was otherwise required to file
the free writing prospectus under Rule 433 (as in the case of
a free writing prospectus that it distributes by broad
In addition, under Rule 159A an offering participant will
not be considered to offer or sell securities by means of a
free writing prospectus solely because another person has used
or referred to the free writing prospectus or filed it with the
Controlling person liability
Liability under the US federal securities laws potentially
extends beyond issuers, underwriters and other direct
participants in securities offerings to the persons who control
those participants. In particular, Section 15 of the Securities
Act and Section 20 of the Exchange Act provide that controlling
persons may be jointly and severally liable with the persons
they control. As a result, an issuer's significant
shareholders, its board of directors (or similar governing
body) and members of its management may be liable along with
the issuer for violations of Section 11, Section 12 or Rule
The term control generally means the possession,
directly or indirectly, of the power to direct or cause the
direction of the management and policies of a person, whether
through the ownership of voting securities, by contract or
is not a bright-line test, and instead depends on the facts and
circumstances of any particular case. A defendant generally
will be found to have controlled an issuer if he or she
actually participated in (that is, exercised control over) the
operations of the issuer and possessed the power to control the
specific transaction or activity from which the issuer's
primary liability derives. Some
courts have held that the defendant must be a "culpable
participant" in the issuer's wrongful conduct in order to
The controlling person has a defence to liability under
Section 15 if he or she "had no knowledge of or reasonable
ground to believe in the existence of the facts by reason of
which the liability of the controlled person is alleged to
exist," and a defence under Section 20 if he or she "acted in
good faith and did not directly or indirectly induce the act or
acts constituting the violation or cause of action." This
analysis is obviously quite fact-specific, and may depend on such
factors as whether the defendant is an inside or outside
Potential controlling persons such as members of an
issuer's board of directors should familiarize
themselves generally with the disclosure used in
connection with an offering, and should pay particular
attention to any high-level statements about an
issuer's strategy, business or financial performance.
They should also review carefully any statements about
themselves (for example, disclosure about a controlling
Liability issues relating to Sarbanes-Oxley
The Sarbanes-Oxley Act has a wide-ranging impact on
liability under the US federal securities laws. It creates new
US federal criminal offences relating to securities,
substantially increases the penalties for existing offences and
increases the SEC's enforcement powers in various ways. Among other things, the
- adds a new section to the US federal criminal code
outlawing the alteration, destruction or concealment of
records to impede a US federal investigation;
- amends existing law to provide for fines and imprisonment
of up to 20 years for corruptly altering, destroying or
concealing documents with the intent of obstructing an
- amends existing law to provide for fines and imprisonment
of up to 10 years for anyone who knowingly takes any action
to retaliate against a person for providing information to US
federal law enforcement officials relating to violations or
potential violations of US federal law;
- creates a new securities fraud crime (with penalties of
up to 25 years imprisonment plus fines) of knowingly
executing a scheme or artifice to defraud any person in
connection with any security of an issuer or to obtain, by
means of false or fraudulent representations, any money in
connection with the purchase or sale of a security;
- increases the maximum individual penalty for violations
of the Exchange Act from $1 million and 10 years imprisonment
to $5 million and 20 years imprisonment, and raises the
maximum corporate fine from $2.5 million to $25
- gives the SEC the ability, after notice and a hearing, to
force an issuer subject to an SEC investigation to put
extraordinary payments to directors, officers, partners,
controlling persons, agents or employees into temporary
- gives the SEC the administrative authority to impose a
ban on a person from acting as a director or an officer of an
issuer (the so-called officer and director bar); previously, the SEC
could only impose the officer and director bar by means of a
- lowers the standard for judicial imposition of the
officer and director bar to "unfitness" to serve as an
officer and director, from the previous "substantial
- prohibits an issuer from retaliating against
whistleblowing employees who provide information or assist an
investigation regarding violations of US federal securities
law, SEC regulations or US federal law on shareholder
- amends the US federal bankruptcy laws to prohibit the
discharge in bankruptcy of debts resulting from judgments,
settlements or court orders in cases involving securities
The SEC has wide-ranging powers to investigate any conduct
that could constitute a violation of the US federal securities
laws. SEC investigations are
conducted by the Division of Enforcement, which also has
responsibility for prosecuting civil violations of the US
federal securities laws. In
addition to bringing charges under the causes of action
described elsewhere in this Overview, the SEC can bring
enforcement actions against participants in the securities
markets (such as broker-dealers, investment advisers, issuers
and their officers, directors, lawyers and accountants) using
causes of action and remedies unavailable to private litigants.
Charges may be brought administratively, or in a US federal
While the SEC has civil enforcement authority only, Section
24 of the Securities Act and Section 32(a) of the Exchange Act
make it a felony for any person to willfully violate any
provision of those acts or a rule promulgated under the acts.
Consequently, the SEC also works closely with criminal law
enforcement agencies throughout the US to develop and bring
criminal cases when the misconduct warrants more severe
(i) Enforcement against foreign private issuers and non-US
The SEC actively enforces the US federal securities laws
against foreign private issuers and non-US nationals. The SEC takes a very
expansive view of its jurisdiction under the US federal
securities laws, and the US courts have generally supported
The SEC's power to enforce the US federal securities laws
against foreign private issuers and non-US nationals is limited
by its ability to obtain evidence from outside the US and to
establish jurisdiction. In order to facilitate its ability to
obtain information from outside the US, the SEC has entered
into over 30 information-sharing arrangements (often called
Memoranda of Understanding, or MOUs) with foreign
financial regulators. These
MOUs establish procedures for sharing information and providing
assistance in instances where key evidence lies outside of the
US. Another, more formal, negotiated mechanism used to obtain
information is a Mutual Legal Assistance Treaty (MLAT)
between the US and another country. The SEC must make a MLAT
request through the US Department of Justice.
Particular difficulties may arise for foreign private
issuers and non-US nationals who have legal obligations in both
the US and in their home countries. While every jurisdiction
prohibits fraud, there is no universally accepted definition of
fraud and thus activities that comply with local laws may
violate the US federal securities laws under certain
circumstances. For example, in E.On AG, the SEC brought an
enforcement action against a German company whose shares were
listed on the NYSE. The SEC charged that the company had denied
falsely that it was involved in merger negotiations and that
the denials (issued in both English and German) violated Rule
10b-5. While acknowledging that disclosure practices regarding
the existence of negotiations may differ in other
jurisdictions, the SEC nevertheless asserted that it would not
apply a different standard to foreign private issuers for
commenting on pending merger negotiations than to US domestic
1933 Act Section 2(a)(3).
David M Brodsky & Daniel J Kramer, Federal
Securities Litigation, 4-16 to 4-17 (1st ed. 1997)
[Federal Securities Litigation].
Id. at 4-2 to 4-3.
Id. at 5-20 (citing Pinter v Dahl, 486 US
622, 641-54 (1988)).
See TSC Indus Inc v Northway Inc, 426 US 438, 449
(1976); see also Securities Act Rule 405
(material information is "matters to which there is a
substantial likelihood that a reasonable investor would attach
importance in determining whether to purchase the security
registered"). TSC involved the interpretation of Section 14(a)
of the Exchange Act and Rule 14a-9. The Supreme Court has,
however, explicitly extended TSC's definition of materiality to
Rule 10b-5, Basic Inc v Levinson, 485 US 224, 231-32
(1988), and the lower US federal courts have generally used the
TSC standard in all contexts involving the anti-fraud
provisions of the US federal securities laws. Louis Loss &
Joel Seligman, Securities Regulation 2074-75 (3rd ed,
1992) [Loss & Seligman].
TSC, 426 US at 449.
Id. at 450.
SAB 103, Topic 1.M.1 (SAB 103 recodifies Staff Accounting
Selective Disclosure and Insider Trading,
Securities Act Release 7881, Exchange Act Release 43154,
Investment Company Act Release 24599, [2000 Transfer Binder]
Fed Sec L Rep (CCH) ¶ 86,319, at 83,676, 83,684 (August 15
2000) [Regulation FD Release].
In the case of an omission, a plaintiff must show that there
was a duty to disclose the material facts; merely being in
possession of material non-public information does not, of
itself, create a duty to disclose. Federal Securities
Litigation, at 6-4.
Ernst & Ernst v Hochfelder, 425 US 185, 193
Federal Securities Litigation, at 6-13 to 6-14.
Id. at 6-26 to 6-27.
Blue Chip Stamps v Manor Drug Stores, 421 US 723,
Loss & Seligman, at 3679 n.553.
See Loss & Seligman, at 3688 (explaining that
"[t]he Rule may be violated by feeding misinformation into the
marketplace, or even withholding information too long,"
regardless of whether the defendants themselves bought or sold
securities) (citation omitted).
Federal Securities Litigation, at 6-30 to 6-31. The
SEC has stated that an issuer may be "fully liable" if it
disseminates and adopts false third-party reports "even if it
had no role whatsoever in the preparation of the report."
Use of Electronic Media Release, ¶ 86,304, at
83,374, 83,381, n.54 (citing In the Matter of Presstek,
Inc, Exchange Act Release 39472 (December 22 1997)).
Federal Securities Litigation, at 6-32; see also
Regulation FD Release, ¶ 86,319, at 83,682
(defining a temporary insider as "a person who owes a duty of
trust or confidence to the issuer," such as an attorney,
investment banker or accountant).
Federal Securities Litigation, at 6-32 to 6-33.
Id. at 6-34.
Id. at 6-34 to 6-35 (citing United States v
O'Hagan, 521 US 642 (1997)). The SEC has added two rules
to clarify issues that have arisen in insider trading cases.
First, Rule 10b5-1 provides that trading "on the basis of"
material non-public information includes all trading while in
possession of that information, except certain trades
previously contracted for in good faith and not as part of a
plan or scheme to evade the prohibitions of Rule 10b5-1.
Second, Rule 10b5-2 fleshes out the meaning of a "duty of trust
or confidence" for purposes of the misappropriation theory.
Federal Securities Litigation, at 6-34.
Id. at 6-42.
1934 Act Section 21D(e)(1); see also Federal
Securities Litigation, at 6-43 to 6-45 (discussing damages
under 1934 Act Section 10(b)).
See, for example, 1934 Act Sections 21(d)(3)
(providing for money penalties in SEC civil actions), 32(a)
(providing for criminal penalties for willful violations of the
Federal Securities Litigation, at 6-42; see
also 1934 Act Section 28(a) (limiting recovery for damages
in actions under the Exchange Act to actual
Federal Securities Litigation, at 3-1.
See Loss & Seligman, at 4217-18.
See Federal Securities Litigation, at 3-8 to
Id. at 3-11 (citing 1933 Act Section 6(a)).
Id. at 3-12.
Id. at 3-14.
1933 Act Sections 11(b)(3)(A) and (B).
1933 Act Section 11(b)(3)(C).
1933 Act Section 11(e).
Federal Securities Litigation, at 3-19 to 3-20.
Gustafson v Alloyd Co, 513 US 561, 564, 584 (1995).
There is some question whether Section 12(a)(2) liability
extends to offshore public offerings under Regulation S. One
lower US federal court has held that, despite Gustafson, "an
offering issued pursuant to Regulation S is subject to" Section
12(a)(2) liability "if it is a public offering." Sloane
Overseas Fund Ltd v Sapiens Int'l Corp, 941 F Supp 1369,
1376 (SDNY 1996).
Federal Securities Litigation, at 5-20 (citing
Pinter v Dahl, 486 US 622, 641-54 (1988)).
1933 Act Rule 159A(a).
1933 Act Rule 159A, Notes to paragraph (a).
Securities Act Reform Release, Section IV.B, at
Securities Act Reform Release, Section IV.A.1, at
Securities Act Reform Release, Section
III.D.3.b.iii(G)(1), at 148.
Id. Section III.D.3.b.iii(D)(2), at 131.
1933 Act Rule 159A(b)(1).
1933 Act Rule 159A(b)(2).
1933 Act Rule 405; see also 1934 Act Rule 12b-2.
Federal Securities Litigation, at 11-5.
Id. at 11-5 to 11-7.
See generally id. at 11-7 to 11-10 (discussing the
See id. at I-187.
See Sox § 802(a) (adding new Section 1519 of
18 USC); see also Huber Outline at I-187.
See Sox § 1102 (amending 18 USC Section 1512);
see also Huber Outline at I-190.
See Sox § 1107 (amending 18 USC Section 1513);
see also Huber Outline at I-190.
See Sox § 807 (adding new Section 1348 to 18
USC); see also Huber Outline at I-190, I-191.
See Sox § 1106 (amending 1934 Act Section
32(a)); see also Huber Outline at I-191, I-192.
See Sox § 1103 (amending 1934 Act Section
21C(c)); see also Huber Outline at I-192, I-193.
See Sox § 1105 (amending 1934 Act Section 21C
and 1933 Act Section 8A); see also Huber Outline at
See Huber Outline at I-193.
See SOX § 305 (amending 1934 Act Section
21(d)(2) and 1933 Act Section 20(e)); see also Huber
Outline at I-193.
See SOX § 806 (adding new Section 1514A to 18
USC); see also Huber Outline at I-195.
See SOX § 803 (adding new Section 523(a) to 11
USC); see also Huber Outline at I-195, I-196.
See SEC v Murphy, [1983-84 Transfer Binder] Fed Sec
L Rep (CCH) ¶ 99,688 (CD Ca 1983).
For a comprehensive discussion of SEC Enforcement practice,
see, for example, The Securities Enforcement
Manual: Tactics and Strategies (Richard M Phillips, ed
1997); William R McLucas, J Lynn Taylor & Susan A Mathews,
A Practitioner's Guide to the SEC's Investigative and
Enforcement Process, 70 Temp L Rev 53 (1997).
See, for example, SEC v Lernout & Hauspie
Speech Products NV, Litigation Release 17782 (October 10
2002) (charging Belgian corporation quoted on Nasdaq National
Market System with financial fraud), available at www.sec.gov/litigation/litreleases/lr17782.htm;
SEC v ACLN Ltd, Litigation Release 17776 (October 8
2002) (charging NYSE-listed Cypriot corporation and its Cypriot
auditor with financial fraud), available at www.sec.gov/litigation/litreleases/lr17776.htm;
SEC v Millennium Financial Ltd, Litigation Release
17528 (May 22 2002) (charging Uruguayan securities firm with
securities fraud), available at www.sec.gov/litigation/litreleases/lr17528.htm.
See, for example, SEC v Unifund SAL, 910
F2d 1028, 1033 (2d Cir 1990) (upholding preliminary injunction
barring insider trading against Lebanese investment company
that purchased stock in a New York Stock Exchange-listed
company through Beirut office of US broker-dealer). See
also Federal Securities Litigation, at 1-5 to 1-8
(discussing the extra-territorial reach of the US federal
2002 SEC Annual Report at 13, available at
For a discussion of MLATs, see Symposium, Mann, Mari &
Lavdas, International Agreements and Understandings for the
Production of Information and Other Mutual Assistance, 29
Int'l Law 780, 781 n.248 and accompanying text (1995).
In the Matter of E.On AG, Exchange Act Release
43372, Administrative Proceeding File 3-10318 (September 28
2000), available at www.sec.gov/litigation/admin/34-43372.htm