Civil Liability

Ambrose Kettleby sold securities to Wilhelmina Radcote in a transaction that violated the Uniform Securities Act, and Wilhelmina commenced a civil action within the statutory period. While the action is pending, Ambrose dies. His estate argues that the claim died with him, and separately contends that had Wilhelmina died first, her claim would likewise have been extinguished. Under the Uniform Securities Act, what happens to the cause of action?

1. A.It is extinguished, because civil liability under the Act is personal to the seller and ends at death.The Act expressly provides that the cause of action survives the death of a person who might have been a defendant.
2. B.It survives only if Wilhelmina had already obtained a judgment before Ambrose died.Survival does not depend on a judgment having been entered. The pending action continues against the estate.
3. C.It survives against the estate, but the estate's liability is capped at the amount of the securities' original purchase price.The Act contains no such cap. The ordinary measure of recovery applies against the estate.
4. D.It survives, because every cause of action under the Act survives the death of any person who might have been a plaintiff or defendant.Correct. The survival provision operates symmetrically, so neither party's death defeats the claim.

Why: It survives. The Act provides that every cause of action under its civil liability provisions SURVIVES THE DEATH of any person who might have been a plaintiff or a defendant. The rule cuts both ways, which is why the estate's second contention fails as well: a buyer's claim passes to her estate if she dies, and a seller's liability passes to his estate if he dies. Without such a provision, liability could be extinguished by the death of a wrongdoer and a defrauded investor's recovery could be lost by her own death mid-litigation, so the survival provision keeps the remedy attached to the transaction rather than to the continued life of the parties. Wilhelmina may therefore proceed against Ambrose's estate.

The outline for this exam cites both "Section 15 of the Securities Act" in some contexts and "Section 15 of the Securities Exchange Act" in others. Are these the same provision?

1. A.Yes, both provisions are the identical statutory text, since the Securities Act and the Exchange Act were consolidated into a single numbering system by Congress.Wrong. The two statutes maintain separate section numbering; there is no such consolidation.
2. B.No, but the Securities Act Section 15 addresses broker-dealer registration while the Exchange Act Section 15 addresses control-person liability.Wrong. This swaps which statute's Section 15 covers which topic.
3. C.No, and in fact only Exchange Act Section 15 is a real, currently effective provision; the Securities Act's Section 15 was repealed decades ago.Wrong. The Securities Act's Section 15 control-person liability provision remains real and currently effective.
4. D.No -- Securities Act Section 15 addresses control-person liability while Exchange Act Section 15 addresses broker-dealer registration; the shared number is coincidental.Correct. Matching section numbers across different statutes are coincidental, not indicative of shared content.

Why: No. These are two entirely different provisions from two different statutes that happen to share the same section number by coincidence. Securities Act Section 15 addresses control-person civil liability for violations of Sections 11 and 12, while Exchange Act Section 15 addresses the registration and regulation of brokers and dealers.

An agent sold a customer shares that, unknown to the agent, were unregistered and nonexempt. The agent had reviewed paperwork suggesting registration was complete and acted in complete good faith. In the customer's civil suit for the registration violation, the agent's good-faith diligence is:

1. A.No defense — liability for selling unregistered nonexempt securities is strictCorrect. Good faith and diligence are irrelevant to a registration-violation claim; the unlawful sale itself establishes civil liability.
2. B.A defense that shifts liability entirely to the issuerThe seller remains liable to his buyer. Rights of contribution among wrongdoers do not erase the selling agent's own liability.
3. C.A complete defense if the agent proves reasonable careThis misapplies the reasonable-care defense, which is available only against misstatement/omission claims, not registration violations.
4. D.Relevant only to reduce the interest component of the recoveryThe rescission formula is fixed by statute; good faith does not trim interest or any other component.

Why: Civil liability for selling in violation of the registration requirements is strict: the buyer need only show the sale of an unregistered, nonexempt security. The 'did not know and could not reasonably have known' defense in Sec. 410 applies to claims based on untrue statements or omissions — not to registration violations. Review: Civil Liability (registration vs. misstatement claims).

The Securities Act provides three distinct civil liability provisions relevant to an unregistered or improperly disclosed offering: Section 11, Section 12(a)(1), and Section 12(a)(2). How do their triggering conditions differ?

1. A.All three provisions require proof that the defendant acted with intent to defraud investors, differing only in which category of defendant may be sued.Wrong. This imports a fraud/scienter requirement into provisions that do not require it, particularly Section 12(a)(1).
2. B.Section 12(a)(1) requires a material misstatement, Section 12(a)(2) requires only a bare registration violation, and Section 11 requires proof of intent.Wrong. This scrambles which provision has which actual trigger.
3. C.The three provisions are functionally identical, simply alternative labels counsel chooses among for strategic reasons.Wrong. The three provisions have materially different elements and defenses.
4. D.Section 11 addresses registration statement defects, Section 12(a)(1) is strict liability for a bare Section 5 violation, and Section 12(a)(2) addresses sale-communication misstatements subject to a reasonable-care defense.Correct. Each provision has its own distinct trigger and defense structure.

Why: Section 11 imposes liability for a material misstatement or omission in a registration statement, with a due diligence defense available to defendants other than the issuer. Section 12(a)(1) imposes strict liability simply for selling a security in violation of Section 5's registration requirement, with no misstatement or state of mind required. Section 12(a)(2) imposes liability for a material misstatement or omission made in connection with an offer or sale by prospectus or oral communication, subject to a reasonable-care defense.