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Liabilities under the federalsecurities lawsSecurities Act of 1933“The statute imposes strictliability for any false materialrepresentation or omission inthe registration statement.”Congress enacted the Securities Act of 1933 (1933 Act) in reaction to the real andperceived abuses in the issuance of securities that resulted in the Wall Street crashof 1929. Subject to certain exemptions, the 1933 Act requires the registration ofsecurities being offered to the public. The 1933 Act requires full and fair disclosureof all material facts necessary for investors to evaluate whether to purchase, sell orhold the security. The most common allegation in suits seeking relief under the 1933Act is that a prospectus, registration statement, or attachments to the registrationstatement filed in connection with the public issuance of securities violated violatedthe Act because they contained material misstatements or omissions of materialfacts in connection with an offering. Plaintiffs often allege that the financialstatements incorporated into the prospectus and registration statement materiallymisrepresented the true financial condition of the corporation issuing the securities.Section 11 suits are commonly brought as class actions against the corporation, itsdirectors, any officers that signed the registration statement, and others. Section15 of the 1933 Act additionally imposes “controlling person” liability on otherdefendants to the same extent as the primary violator.In order to establish a prima facie case under Section 11, a plaintiff need not allegeany form of fraud or even negligent conduct on the part of the defendants. Rather,the statute imposes strict liability for any false material representation or omission inthe registration statement.Section 12(2) of the 1933 Act similarly gives purchasers of a security a remedyagainst the offer or seller of a security for misstatements or omissions in connectionwith the security’s offer or sale. If successful, the plaintiff in a Section 12(2) case isentitled to a return of the purchase price of the security. A seller is not liable if theseller did not know or in the exercise of reasonable care could not have known ofthe untruth or the omission. Under some circumstances, directors may be held liableas “sellers” under Section 12(2).Securities Exchange Act of 1934The Securities Exchange Act of 1934 (1934 Act) regulates the public trading ofsecurities. The 1934 Act requires public companies to file detailed quarterly, annualand other reports with the SEC. The most commonly invoked provision concerningliability in the 1934 Act is Section 10(b), as implemented by Rule l0b-5. Under Rulel0b-5, in connection with the purchase or sale of any security, it is unlawful for anyperson to:15Financial institutions guide