B. Damages for Individual Claims Brought Under the Securities Act of 1933

• Library: South Carolina Damages (SCBar) (2009 Ed.)

B. Damages for Individual Claims Brought Under the Securities Act of 1933

1. Registration Statement Misrepresentation Under Section 11: Title 15, Section 77k of the United States Code

Section 11 covers materially misleading registration statements. Facing potential liability under the statute are the security's issuer, the issuer's officers who signed the registration statement, the issuer's directors or partners, experts such as the certified public accountants who audited the issuer's financial statements, and the security's underwriters.

Damages under section 11 are limited by subsection (g) to a maximum of the price at which the security was offered to the public. Thus, if an issuer initially sold stock at $10.00 per share, a swindled investor who purchased the stock in the aftermarket at $40.00 and lost her entire investment, would have a maximum recovery under section 11 of $10.00. Under section 11(e) the value of the security for purposes of fixing damages is either the price at which it was sold prior to suit, or the greater of the value of the security at the time suit was brought or its sales price after suit was brought. Thus, if the security was sold by the issuer for $10.00 and was sold by Investor A before suit for $8.00, damages would be $2.00. If Investor B bought and continued to hold the same investment and it was worth $5.00 at the time suit was brought and became worthless prior to trial, Investor B's maximum damages would be $5.00. On the other hand, if Investor B's stock price rose $8.00 after suit was brought and the stock was sold prior to trial, her damages would be $2.00 per share.

A causation defense is included in section 11(e), enabling defendants to avoid or limit liability by proving the plaintiff's investment loss was not due to the alleged misrepresentation or omission, but to other factors, such as a decline in the stock market generally.⁵

As amended by the Private Securities Litigation Reform Act, section 11 now limits the liability of a company's outside directors not guilty of intentional deception to their "proportionate liability."⁶ An underwriter's liability under section 11(e) is several, as it is limited to, at most, "the total price at which the securities underwritten by him and distributed to the public were offered to the public."⁷ With these exceptions, defendants' liability under section 11 is joint and several.⁸

2. Section 12(a)(1) for Section 5 Violations

Under section 12(a)(1),⁹ investors can sue their...