Legal Rate Of Interest

Under the civil liability provisions of the Uniform Securities Act, a buyer who still owns securities sold to her in violation of the Act may recover:

1. A.The current market value of the securities plus interestRecovery is measured by what she PAID, not what the securities are now worth. Market value would reward or punish market moves, which rescission does not.
2. B.Her consideration paid, but only if she proves the seller intended to defraud herNo proof of intent is required for the buyer's civil remedy; the violation itself creates liability.
3. C.Three times her actual damagesTreble damages belong to other statutes (such as federal insider-trading penalties), not the USA's civil remedy.
4. D.The consideration paid plus interest, costs, and reasonable attorney's fees, less income received, upon tendering the securitiesCorrect. This is the complete Sec. 410 rescission formula, and tender of the securities is required.

Why: Sec. 410 gives the buyer rescission: upon tender of the securities, she recovers the consideration paid, plus interest at the legal rate and costs and reasonable attorney's fees, minus any income received on the securities. Review: Civil Liability.

Before being sued, a broker-dealer discovers it sold securities to a customer in violation of the Act. The customer has ALREADY resold the securities at a loss. To cut off the customer's right to sue, the firm's written rescission offer must offer to pay:

1. A.Damages equal to the buyer's loss, plus interest at the legal rateCorrect. For a buyer who no longer owns the securities, the statutory offer is damages plus interest, not repurchase of shares the buyer cannot tender.
2. B.The original purchase price against tender of the securitiesThe customer cannot tender securities she no longer owns. Insisting on tender makes the offer ineffective on these facts.
3. C.Nothing yet — a rescission offer is available only after suit is filedBackwards. The rescission offer is a PRE-suit device; a proper offer not accepted within 30 days extinguishes the right to sue.
4. D.The current market price of the securitiesMarket price at the time of the offer is irrelevant; the measure is the buyer's damages with interest.

Why: Because the buyer has disposed of the securities, rescission of the exchange is impossible; the effective offer under Sec. 410 is to pay damages — essentially the buyer's loss on the round trip — together with interest at the legal rate, less any income received. The buyer then has 30 days to respond. Review: Civil Liability (rescission offers).

Before being sued, a seller mails a rescission offer for a sale made in violation of the Act. To be effective in cutting off the buyer's right to sue, the offer must include:

1. A.Double the purchase price as a penaltyWrong. No punitive multiple exists in rescission.
2. B.The original purchase price onlyWrong-but-tempting. Omitting interest renders the offer nonconforming.
3. C.The consideration paid plus interest at the legal rate, less income receivedCorrect. The complete statutory formula is required for the offer to count.
4. D.Replacement securities of equal valueWrong. Rescission is a cash remedy, not a swap.

Why: The statutory offer must tender the consideration paid plus interest, less any income received on the security; only a conforming offer triggers the buyer's 30-day acceptance window and the suit bar for non-acceptance. Citation: Uniform Securities Act Sec. 410(e). Takeaway: no interest, no valid rescission offer.

Osric Fenn paid $48,000 on May 1, 2023 for stock sold to him in violation of the Uniform Securities Act. He collected $2,100 of dividends while holding it. He still owns the shares, which are now worth $19,000. Judgment is entered in his favour on May 1, 2026, and the legal rate of interest in the state is 5% simple. Setting aside costs and attorney's fees, what must the seller pay him, and on what condition?

1. A.$55,200, on tender of the shares to the sellerThis omits the deduction for income received. Dividends collected during the holding period reduce the recovery.
2. B.$53,100, on tender of the shares to the sellerCorrect. $48,000 + $7,200 of interest - $2,100 of dividends = $53,100, and the shares go back.
3. C.$45,900, on tender of the shares to the sellerThis subtracts the dividends but never adds interest. Interest at the legal rate runs from the date the consideration was paid.
4. D.$34,100, with the plaintiff keeping the sharesThis deducts the shares' current $19,000 value, which is the measure for a plaintiff who has already sold. A plaintiff who still owns tenders instead.

Why: Because Osric still owns the securities, the remedy is rescission on tender. He recovers the consideration he paid, plus interest at the legal rate from the date of payment, less any income he received on the security, and he must tender the securities back to the seller. Interest is $48,000 at 5% for the three years from May 1, 2023 to May 1, 2026, which is $7,200. So $48,000 plus $7,200 less $2,100 of dividends is $53,100, payable against tender of the shares. The current $19,000 market value plays no part - that figure would matter only if he had already sold.