Material Aider Liability

Halverton Reach Securities sold unregistered, nonexempt securities to Dorotea Pisani. She sues the firm and also names Ambrose Lyle, a director of the firm, who signed nothing connected with the offering and testifies that he never heard of it. Under the Uniform Securities Act's civil liability provisions, the question whether Lyle knew or could have known of the facts giving rise to the liability is resolved by:

1. A.requiring Pisani to prove that Lyle actually knew of the violationThe plaintiff does not have to prove the control person's knowledge. Status plus the primary violation is enough to state the claim.
2. B.requiring Pisani to prove that Lyle was negligent in failing to discover the violationNegligence is not an element the plaintiff must plead. The reasonable-care question arises only as the defendant's affirmative defence.
3. C.requiring Lyle to prove that he did not know, and in the exercise of reasonable care could not have known, of the facts giving rise to the liabilityCorrect. The Act places the burden of that defence squarely on the partner, officer, director or material aider.
4. D.treating Lyle's liability as absolute, with no defence available to himThe statute does supply a defence. It is simply his to prove rather than hers to disprove.

Why: The Act extends joint and several liability to every partner, officer and director of a seller, every person occupying a similar status or performing similar functions, every employee who materially aids in the sale, and every broker-dealer or agent who materially aids. Each such person is liable TO THE SAME EXTENT AS the seller UNLESS that person sustains the burden of proof that he did not know, and in the exercise of reasonable care could not have known, of the existence of the facts by reason of which liability is alleged. The burden sits on the defendant. Pisani proves the primary violation and Lyle's status; Lyle then has to prove himself out.

Corvet Lane Securities sold Ignatius Wardour securities in violation of the Uniform Securities Act. The firm is now insolvent. Wardour sues Petra Almond, the firm's sales manager, who materially aided the sale. Almond argues that Wardour must first obtain and attempt to enforce a judgment against Corvet Lane, and that in any event she can be liable only for the portion of the loss attributable to her own conduct. Under the Act, Almond is:

1. A.liable jointly and severally to the same extent as the firm, so Wardour may recover the entire amount from her without first proceeding against the firmCorrect. Joint and several liability lets the plaintiff choose any liable defendant for the full amount; contribution sorts out shares afterwards.
2. B.liable only for a share of the loss proportionate to her own participation in the saleProportionate shares matter in a contribution action among defendants, not in the plaintiff's claim.
3. C.liable only after Wardour has obtained a judgment against Corvet Lane and it has gone unsatisfiedThe Act imposes no exhaustion requirement. The plaintiff need not sue the seller first.
4. D.not liable at all, because material aiders are subject only to administrative sanction rather than private suitMaterial aiders are expressly made civilly liable to the buyer under the Act.

Why: A person who materially aids a sale made in violation of the Act is liable JOINTLY AND SEVERALLY WITH AND TO THE SAME EXTENT AS the seller. Joint and several liability means the plaintiff may proceed against any liable person for the whole amount; he need not sue the primary violator first, exhaust remedies against it, or apportion the claim. Almond's protection lies elsewhere: she may raise the reasonable-care defence, and if she pays more than her share she has a right of contribution from the others who are liable. Neither of those is a reason to send Wardour back to an insolvent firm first.