6.9 Liability Under Virginia Securities Law

• Library: Corporations and Partnerships in Virginia (Virginia CLE) (2016 Ed.)

6.9 LIABILITY UNDER VIRGINIA SECURITIES LAW

6.901 The Virginia Securities Act. The Virginia Securities Act ²¹⁰ imposes both criminal and civil liability for violations of its provisions. Its definition of "security" parallels the definition in the Securities Act, except that insurance policies are expressly exempt from the Virginia Act. ²¹¹

State law securities violations rarely have been litigated. However, these provisions serve as potential sources of liability for directors and officers.

6.902 Civil Liabilities. Any person (including an individual, partnership, corporation, association, or trust) who sells a security in violation of the registration procedures, employs any device or scheme to defraud in connection with the offer or sale of securities, or sells a security by means of any material misstatement or omission is liable to the purchaser for the consideration paid for the security, together with interest at six percent, costs, and attorney fees, but reduced by any amounts received upon tender of the security to the seller and any income derived therefrom. ²¹² There is no requirement that the purchaser rely on the material misstatement or omission in deciding whether to purchase the securities. ²¹³ In addition, every person who materially participates in or aids such a sale of a security or who directly or indirectly controls any person making such a sale is also jointly and severally liable to the same extent. ²¹⁴

Section 13.1-522(A) of the Virginia Code imposes liability on those who "sell" securities in violation of the Virginia Securities Act. However, a federal counterpart to that statute, section 12(a)(1) of the Securities Act of 1933, imposes liability on those who "offer or sell" securities. The court in Atocha Limited Partnership v. Witness Tree, LLC ²¹⁵ found this difference between the

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two statutes to be significant. Accordingly, although it observed that mere solicitation of a purchase might give rise to liability under the Securities Act of 1933, ²¹⁶ it refused to find the defendants liable as "sellers" under the Virginia Securities Act, where their only involvement in the transaction was to solicit the purchase of securities.

Those who materially participate or aid in the improper sale, as well as those who sell by means of a material misstatement or omission, may avoid liability if they are able to establish that they did not know, and in the exercise of reasonable care could not have known, of the untruth or omission. ²¹⁷ This "due diligence" defense is not available to a person who sells the security in violation of the registration provisions or by employing a device or scheme to defraud.

It is no defense, however, to an action brought under sections 13.1-502 and 13.1-522(A) of the Virginia Code that the purchaser easily could have verified the accuracy of...