Sec Reg Chart

8/2/2019 Sec Reg Chart

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Violated Conduct Standing Defendants Elements Defenses Remedy

3312(a)(1)

Violationof 5

Any person whobought a securityfrom a D

Any personwho violated5

Violation of 5 (strict liability) Strict Liability Rescission ordamages if P soldalready

33 11 Fraud inRS

Strict Tracing ofsec. purchased tooffering w/fraudulent RS

Statutory Ds - Material misstatement in RS (asof effective date)- Reliance where D releases anearnings statement covering 12 mo.period after effective date

- P had actualknowledge of fraud- D blew whistle- Loss causation- DD for all but issuers- SOL

Differs dependingon if P sold b/f suit,after suit filed, orstill owns

33

12(a)(2)Fraud inprospectus

Any person whobought a securityw/ a fraudulentprospectus

Offeror/Sellerof a securityw/ afraudulentprospectus

- Public offering w/ 5 deliveryobligation- Material misstatement inprospectus

- SOL- Reasonable Care forsellers

Rescission ordamages if P soldalready

34 R. 10b-5

Fraud inconnectionw/purchase

or sale

- In connectionwith (must be a

defraudedpurchaser or

seller)

- Primaryviolators(aiders andabettors in

SEC action)

- a material misstatement/omissionOR a manipulative/deceptive act- scienter- reliance (but see exceptions)

- loss causation

- Out of pocketexpenses (typicalremedy)- Disgorgement

- Rescission- Benefit of thebargain

33 17(a) Fraud inoffer orsale

- SEC only Any offeror orseller

-Negl is enough Administrative,judicial

34 9(a) Fraudulenttrading aon natl

exchange

- Bought/sold onnatl exchange at

price effected byfraud

- Any personwho engagesin fraudulenttrading

- Engaging in trading that createsthe appearance of active trading ordemand- Scienter (trading for the purposeof creating the false appearance)- loss causation

- Rebutt one of theelements

?

34 13 Books &RecordsViolation

- SEC only (ifthey really want toget somebody

bring this)- DOJ if goingcriminal

Any 34 Actreporting co.

- Not keep accurate books/records- Not devise/maintain internalaccounting controls

- Criminal offense if knowinglyfalsified

Strict Liability Administrative,judicial, criminal

Section Trigger Discl. Requirements Termination

12(a) Registering a security on an Periodic Filings Delisting and either:


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exchange (securities traded by abroker/dealer)e.g. - listing

Proxy Rules/Annual Report $10mil. total assetse.g.size

Tender Offer Rules < 500 Shareholders AND

Insider Stock Transactions (16) < $10mil. in assets for 3 years

15(d) Registered public offering

e.g.public offering

Periodic Filings < 300 Shareholders AND

No earlier than next fiscal year after theoffering

R. 504 R. 505 R. 506

IssuersEligible

No 34 Act cos, Investment orBlank Check cos.

No Investment cos. All Issuers

AggregateOfferingAmount

Up to $1mil aggregate (less anyother 3(b) or 5 violatingofferings in past 12 mos. unless502(c) applies)

Up to $5mil aggregate (less anyother 3(b) or 5 violatingofferings in past 12 mos. unless502(c) applies)

Unlimited

Number ofPurchasers

Unlimited 35 (less accredited/familymembers)

35 sophisticated (lessaccredited/family members)

Disclosure? None Limited Limited

Gun Jumping Rules

R. 163A 30 DayWindow

Pre-FilingPeriod

Waiting Period Post-Effective Period 4(3) SP delivery timelimits

5(c) prohibits offers

5(a) prohibits sales (extends b/f 30 day window too)

5(b)(1) prohibits transmitting a prospectus unless it meets 10

5(b)(2) prohibits transmitting securities or confirmation


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of sale w/out prospectus that meets 10

10(b) requires prelim.prospectus w/out price

10(a) requires final prospectus w/ price

Safe Harbors in Pre-Filing Period

Rule Exempt From Eligibility Content163A 5(c) Issuers -ANY statements occurring > 30 days b/f filing RS

- Dont mention offering168 5(c), 2(a)(10) 34 Act reporting issuers -Factual biz. info, forward looking info regularly released

-Don mention offering169 5(c), 2(a)(10) Non-34 Act reporting

issuers- Factual biz. info regularly released (no forward look)- Can not send to those acting in investor capacity

163 5(c) WKSIs - Offers (treat as FWPfile w/ SEC after filing RS, includelegend on how to get SP)

135 5 Issuers -Short factual statement of proposed offering- Cant refer to UW name

5, 2 5, 2 Issuers, UWs - Communications b/t UW syndicate and issuer

See alsoAnalyst safe harbors under Waiting Period Section

Safe Harbors in Waiting PeriodRule Exempt From Eligibility Content

Carry overs from 5(c) safe harbors

168 5(c), 2(a)(10) 34 Act reporting issuers -Factual biz. info, forward looking info regularly released-Don mention offering

169 5(c), 2(a)(10) Non-34 Act reporting

issuers

- Factual biz. info regularly released (no forward look)

- Can not send to those acting in investor capacity135 5 Issuers -Short factual statement of proposed offering

- Cant refer to UW name

5, 2 5, 2 Issuers, UWs - Communications b/t UW syndicate and issuer

New safe harbors from 5(b)(1)5(b)(1) Complies with

5(b)(1)Issuers, participants Any offers so long as include a SP

5(b)(1) 5(b)(1) Issuers, participants Any ORAL offers, including roadshows, not broadcast


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134 2(a)(10) Issuers, participants - Like 135 but can include a bit more specified info- Can solicit offers if include SP and boiler plate legend

164/433 Treated as

10(b) Pros.

Issuer, participants

- but not investment orshell cos, penny stocks,or R. 405disqualifications

- Unrestricted in what you can include BUT

- Cant contain contrary info to SP on file w/ RS- Include a legend (but non-reporting and unseasoned issuersmust deliver SP)- Retain for 3 yrs.- File w/ SEC in most circumstances (see exemptions)

Registration ProcessPre-Filing Waiting Period Post-Effective

What is it? The period between when the issueris in registration (good faith effort

of BOD to begin registrationprocess) and the actual filing of theRegistration Statement.

The period after the first draft is filed until theoffer goes effectivewaiting for effectiveness

from SEC (going through SEC review process).-During this period, the issuer gauges investorinterest.-8 says 20 days for SEC to declare statementeffective but usually waived.

-When SEC declares the statementis effective, until the offering ends

and the issuer no longer is inregistration.

Permitted (1) Regularly releasedinformationbe consistent withpast practices (dont mentionoffering)

(2) Rule 135 Safe Harbor PressRelease (will not be deemed anoffer) permits ISSUER toannounce its intention to make apublic offeringMandatory Items: thecommunication (legend) must statethat an offer may be made only by aProspectus and the information youare issuing is not an offer.Permissible Items: the name ofissuer, title, amount and basic termsof securities to be offered,anticipated timing of the offer,

-Can make offers but cannot accept offers.-Preliminary negotiations with underwriters2(a)(3)

Written offers(1) Only by use ofPreliminary

Prospectus (everything in finalprospectus EXCEPT: offering price,

underwriter and dealer compensation,amt of proceeds, conversion rates, callprices, and all other patterns dependenton the offering price).

-The red legend on a preliminary prospectus thatsays preliminary prospectus and this is anincomplete prospectus and it gives people anidea of what is coming but it can be changed.Note: SEC wont grant effectiveness until it getsassurances from underwriters that the preliminaryprospectus (in the form closest to final

-Issuer/underwriter can sellsecurities to ppl who have indicatedinterest and based investmentdecision on final preliminaryprospectus - because trades get donejust about instantly once becomeseffective.-Formal offers may be made and

accepted and of course sales may beconsummated.

-Free Writing: As long as a report isaccompanied by or preceded by aFINAL prospectus (10(a)), you cansay whatever you like.

5(b)(1): After the registrationstatement is effective, all writtenoffers to sell must be preceded by or


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amount of offering, whether theoffer is directed to a particular classof purchasers (public or private),brief purpose of offering.

Prohibited Items: name theunderwriters & the offering price(b/c they are generally not obligatedto underwrite until the day beforethe offerunderwriter can back outat any time).

(3) Pre-filing negotiations withunderwriters2(a)(3), such asinvestment banks.-Ex. Msoft can call GS in NY andset up a meeting about becomingthe managing underwriter for theplanned offering.

prospectus), was circulated to all investors whoindicated interest.Note: If the final prospectusdiffers (materially)from the final preliminary prospectus, a new

FPP must be circulated for 48 hours prior toeffectivenesseffectivness will be delayed for twodays.

(2) Rule 134 Safe Harbor: TombstoneAd (ex. placed in WSJ)usually justidentify security, state its price, andname the underwriters.

May include:-Factual information about the legal identityand business location of the issuer limited tothe following: the name of the issuer of thesecurity, the address, phone number, andemail address of the issuers principal offices

and contact for investors, the issuers countryof organization, and the geographic areas in

which it conducts business;-The full title of the security and the amountbeing offered, which title may include adesignation as to whether the securities areconvertible, exercisable, or exchangeable, andas to the ranking of the securities.Shall Include: Legend (in red): A registrationstatement relating to these securities has beenfiled with the SEC but has not yet becomeeffective. These securities may not be soldnor may offers to buy be accepted prior tothe time the registration statement becomes

effective. This communication shall notconstitute an offer to sell or the solicitationof an offer to buy nor shall there be any saleof these securities in any State in which suchoffer, solicitation or sale would be unlawfulprior to registration or qualification under thesecurities laws of any such State.

Oral offers: can say anything as long as you do notaccept an offer/payment.

accompanied by a final prospectusthat complies with 10 of the 33

Act (should be final prospectus, butdoes not matter if you send it in

parts).

5(b)(2): When a security is deliveredit is required that the finalprospectus be delivered with thesecurity.

Final Prospectus: info normallycontained in a PP plus info onoffering price, underwritercompensation, amt of proceeds, andother info dependent on offeringprice. Legend is removed!


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Underwriter sales efforts: In making oral salesoffers, underwriter distributes preliminaryprospectuses (continuously if they change) to

prospective investors. Final preliminaryprospectus must be almost identical (except forprice change) to final prospectus (if not, send itout again and has to circulate for 48 hours beforeeffectiveness).

Impermissible -Marketing and sale of any security.

-Inconsistent Communications (anissuer cannot launch a newmarketing/PR campaign if it neverhad one).

-Gun Jumping (efforts to promotesale of stockeven indirectprior

to registration)

Note: Before the BOD decides tofile a registration statement (beforethe company is in registration),the company can do anything.

-Sales (accepting offers or money) or deliveries

-Written offers aside from preliminaryprospectuses or tombstone ads (emails, hyperlinkson websites, notes that say this is a good buy)

Things an issuer can use Things a control person can

use

Things a reporting company can

use

Things a private (non-

reporting) company canuse

Things investment

companies can use

3(a)(11) [Rule 147] Rule 144 (only if public co.) Rule 505 4(2) [Rule 506] 4(2) [Rule 506]4(2) [Rule 506 andregular 4(2)]

4 (1 ) 4(2) [Rule 506] Rule 504

Rule 504 Reg A (only if non-public co.and not mutual fund)cansell to unsophisticated people(only up to $1.5)

3(a)(11) Rule 505

Rule 505 Reg A


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Reg A (only if non-public co. & not mutualfund))

3(a)(11)

3(a)(9)exchange offer

a. Intrastate Offering Exemption: 3(a)(11)/147 (only available for issuers)

Intrastate Offering Exemption

Available to

Issuers only

Requirements

(1) Residencyprincipal place of business, where incorporated, where one resides(2) Doing Businessheadquarters and 80% test

Note: requirements apply to both offerees and purchasersNote: issuer must be in same state as people he offers OR sells securities to

Note: underwriters do not have to be resident of the same state as the issuer

Integration

Use 5 factors of integration: ALSO USED FOR 4(2) and Reg. D.(1) Are the offerings part of a single plan of financing? (what is the $ being raised for?)(2) Do they involve the same class of securities? (if diff classes, better for issuer)(3) Are the offerings made at or about the same time?-Usually home free if made over a year apart.-Rule of Thumb: Offers/sales made 6 months before or after a 3(a)(11) probably wont be integrated b/c of 147(b)(2).(4) Is the same type of consideration to be received? (if diff consideration, better for issuer)(5) Are the offerings made for the same general purpose?

Advertising Can advertise as long as you say it is limited to people in a certain state

Note: this might screw up 4(2) offering (since allowed to solicit to unsophisticated people) or even a registered offering (gunjumping).

Resale Resales out of state okay after 9 months (starting at date of last sale; however, 9 month period tacks back to date of issuance ofpurchaser subsequently transfers the securities to someone who is resident of the same state).

Note: if buyer unexpectedly moves (in good faith/not known when he bought), exemption not blown.$Limit/Aggregation

No limit

# of Investors No limitSophistication Not required


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Non-Public Offering: 4(2)

Available to

Issuers Only

Requirements 4(2) exemption applies if: (1) Investor is sophisticated, and (2) Investor has access to information (from position with issuer orfrom disclosure).

Advertising

No general solicitation5(c)

Resale Restricted securitiessomeone who buys under 4(2) cannot re-sell to unsophisticated people; must meet another exemption orregister in order to re-sell.

$ Limit/Aggregation

No limit

# of Investors No limit for 4(2), but 35 non-accredited investors under 506Integration 6 month rule; 5 factors of integration

REG D OVERVIEW Rule 504 [method to adhere to 3(b)exemption]

Rule 505 [method to adhere to3(b) exemption]

Rule 506 [4(2) safe harbor]

Aggregate Offering Price Limitation $1,000,000 (12 months); aggregatewith 504/505/Reg A in past 12months.

Note: no problem if I did a 4(2) or a3(a)(11) during that period because3(b) offerings are only relevant foraggregation.

$5,000,000 (12 months);aggregate with 504/505/Reg Ain past 12 months.

Note: no problem if I did a 4(2)or a 3(a)(11) during that periodbecause 3(b) offerings are onlyrelevant for aggregation.

Unlimited (usually used bymore mature businesses sinceno dollar cap)

Note: use if offering is for morethan $5 mil.

Number of Investors Unlimited 35 non-accredited plusunlimited accredited

35 non-accredited plusunlimited accredited

Note: if more than 35 non-

accredited people (not on 501list), try 4(2) if they aresophisticated.Ex. 38 MBA gradscant do506 b/c not on list ofaccredited investors (unless theyare millionaires), but can do a4(2) b/c sophisticated.

Investor Qualifications None required (b/c 3b exemption) None required (b/c 3bexemption)

Non-accredited purchaser mustbe sophisticated (alone or withrepresentative); accredited


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investor is presumed to besophisticated

Sales Commissions Permitted Permitted PermittedLimitations on Manner of

Offering/General Solicitation

Usually no general solicitation

permittedbut quirk (depends onstate law)

No general solicitation No general solicitation

Note: if issuer solicits, investorhas to bepersonally/professionallyknownthrough apreviousrelationshipto either the issueror the placement agent.

Limitations on Resale/ RegisteredSecurities

Usually restrictedbut quirk(depends on state law)

Restricted Restricted

Issuer Qualifications All issuers EXCEPT reportingcompanies, investment companies(mutual fund), or blank checkcompanies

All issuers except investmentcompanies (mutual funds)

Note: reporting companies canuse this)

Available to ALL ISSUERS

Notice of Sales Form D to SEC (15 days after firstsale)

Form D to SEC (15 days afterfirst sale)

Form D to SEC (15 days afterfirst sale)

Information Requirements/Disclosure Requirements

No Disclosure Required Disclosure requirements of502b to all who arentaccredited investors (nodisclosure for accreditedinvestors)

-give investors opp to askquestions/receive answers

Disclosure requirements of502b to all who arentaccredited investors (ifaccredited but ask for info,must disclose)-PPM 506 prospectus-give all investors opp to askquestions/receive answers

Integration Not integrated if done 6 monthsbefore and 6 months after

Not integrated if done 6months before or after

Not integrated if done 6months before or after

Sophistication N/A N/A -Non-accredited must besophisticated(RP) -demonstrate that they ORtheir purchaser

representativeis capable ofevaluating the merits and risksof the investment-Accredited presumed to besophisticated


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Reg. A: Mini Registration [3(b) exemption]

How to do a Reg A

-issuer prepares an offering circular (form I-A) [simplified disclosure doc; either registration-type or question-and-answer format]-file it with SEC local office-then SEC says the statement is qualifiedRule 251: lays out requirements of how to do a Reg. ABad-Boy: cannot do a Reg A if disqualified as a bad boy

Available to

Non-Reporting US and Canadian Issuers & Insiders[no reporting companies or mutual funds]

Note: Use this when insider of non-reporting company wants to make small private OR public offering (up to $1.5 mil) b/cReg. D is only available to issuers/4 (1 ) for insiders but only for non-public offers.

Note: Use this when:(1) selling to the publicunsophisticated people (when you cannot do a 4(2) or 506);(2) if an insider is selling securities (Reg. D only available to issuers);(3) if you want to test the waters (general solicitation)(4) lenient integration(5) you do a 504/505 first (only aggregated with other Reg As)(6) if you want to resellthey are not restricted

Aggregation Only integrated with Reg A offerings within the previous 12 months (not with 504/505)

Note: Do a 504/505 first, then do a Reg. A.Integration (verylenient)

Reg. A offerings will NOT be integrated (putting offerings together that might violate the act) with either:Any PRIOR offerings that are NOT Reg A, orLATER offerings that are:

registeredmade in reliance upon Rule 701;made pursuant to an employee benefit plan;

made in reliance upon Reg. S or;made more than 6 months after the Reg. A offering

Advertising -Pre-filing: Testing the Waters (Rule 254): This rule allows the issuers to test the waters prior to filing offering statements tosee if theres any interest in the offering before expending time and money on a Reg. A offering (which would be a gross

violation of gun jumping under 5).-Before qualified but after filing: can make offers, publish/deliver a written document to prospective purchasers or make aradio/tv broadcast.-After qualification: can make sales.


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Resale Not restrictedmay be resold immediately$ Limit/

Aggregation$5 mil for primary offerings; $1.5 mil for secondary offerings (i.e. by insiders)

Note: If theres interest above the $5M cap, under Rule 254(d) the issuer may move out of 3(b)/Reg A, and instead do aregistered offering (under 5) without running afoul of the gun jumping rules. Issuer must waits at least 30 days between thesolicitation of interest and the filing of the Registration Statement.Note: If want to switch from Reg. A to a Reg. D, wait 6 months.

# of Investors No limitSophistication Not requiredcan sell to unsophisticated people (the public)

Categories of Off-Shore OfferingsRequirements for All: Offermade in an off-shoretransaction and no directedselling efforts in US.

Who Does it Apply To? Offering Restrictions Transaction Restrictions

Category 1: Little or No USConnection Non-U.S. issuers or securities for

which there is

(1) NO substantial U.S. market

interest in the securities being

offered (not quoted on US stock

exchange or debt security with

fewer than 300 US holders), OR

(2) A foreign issuer (PJ says also

applied to U.S. issuers) engaged

in an overseas directed

offering (securities of a non-US

None None


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issuer directed at a single country

OR a US/foreign debt security

denominated in non-US currency

and directed at a single country)

Category 2: Middle USConnection

Foreign issuer offering debt(subject to the 34 reportingrequirements), OR

A foreign issuer offering debt,who has securities trading in theU.S., OR

A foreign issuer offering equitywho is already subject to the '34

act's reporting requirements.

-Each underwriter must agree toconform to the Reg. S safe harbor(40 day resale restrictionfor 40days after the offering, no offersor sales may be made to US

persons),-The offering material must bear alegend that the securities have not

been registered in the U.S. and maynot be offered or sold in the U.S.without either registration or anexemption

The issuer must require that thepurchaser will not sell the securitiesback into the U.S. for 40 daysgivenotice/disclaimer to thepurchaser/investor (this is toprevent sham/straw man offshoretransactions).

Category 3: Strong USConnection

All issuers not in category one ortwo.

-Each underwriter must agree toconform to the Reg. S Safe Harbor.-The offering material must bear alegend that the securities have notbeen registered in the U.S. and maynot be offered or sold in the U.S.

without either registration or anexemption.

-Equity Securities: the issuer mustensure that equity securities will notbe sold into the U.S. for 1 year(done with a legend)-Debt Securities: the issuer mustensure that debt securities will notbe sold into the U.S. for 40 days


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Affiliate/Control People Non-Affiliate (for at least 3 mos)

Restricted Securities of ReportingIssuers (Public Companies)

-reportingunder the 34 Act anythinglisted on NYSE and NASDAQ-Ex. Microsoft, GE

- No sales for six months for restricted securities (i.e.in a 506 from Microsoft).

-------No such holding period for non restrictedsecurities (if purchase on open market/NASDAQ).- Issuer current in '34 Act filingsNever fallsaway!- Volume Limitations- Equity securities may only be sold in "regular waybrokers' transactions": no private sale, no negotiatedsale, no conditioning of the market; must call upbroker and sell into the anonymous market (ex. BGcalls up broker and says I am sending overcertificates for 10,000 shares. Broker sells intoanonymous market) ---- No manner of salelimitation for debt securities.- Filing of Form 144 (one page fill in the blank

notification formwhat is being sold?)

- No sales for six months for restricted securities- After six months, but under one year: Can sell

only if issuer is current in public information (34Act reporting requirementsperiodic disclosure)- After one year: All restrictions fall away, thesecurities are no longer "restricted securities"(unlimited public resales).-Ex. Jalil buys Microsoft common stock in a 506.

Restricted Securities of Non-Reporting Issuers (Non-Public/Private Company)

-does not report under 34 Act-Ex. Acme car wash, M&M Morris-not traded on stock exchange-doesnt mean they are small!

- No sales for one year for restricted securities.-----No such holding period for non- restrictedsecurities.- Current Public Information (15c2-11 information,

which is voluntary)- Volume Limitations- Equity securities may only be sold in "regular waybrokers' transactions". No manner of sale limitationfor debt securities- Filing of Form 144

- No sales for one year for restricted securities- After one year: All restrictions fall away, thesecurities are no longer "restricted securities"(unlimited public resales).

CIVIL LIABILITY UNDER33 ACTREMEDIES

AVAILABLE TOPLAINTIFFS, NOT THESEC .

NOTE: the antifraudprovisions of the 33 Actapply to fraud committed by

11: Civil liability formisstatements or omissions in

effective registration statement orprospectus

12(a)(1): Civil liability for offers orsales in violation of section 5

(mess up in the process ofregistering or finding an

exemption)

12(a)(2): Civil liability for false ormisleading statement in

prospectus/oral communicationof a registered offering


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the seller against purchasers(whereas anti-fraudprovisions under 34 Actapply to purchasers and

sellers)Violation Section 11 imposes liability ondesignated persons for materiallyfalse or misleading statements oromissions in an effective registrationstatement/prospectus (after youalready registered).

-Note: cannot sue onunapproved/preliminary prospectus.

-Applies to primary and secondary

offerings.

-Liability for noncompliance withregistration rulesif a seller/offeror

violates the registration or gun-jumping requirements of section 5,securities purchasers can rescind theirinvestment (12(a)(1)).

-Liability under 12(a)(1) is absolutefor any violation of a provision ofsection 5, such as a sale ofunregistered securities, messing up anexemption, failure to deliver therequired prospectus, making an illegal

offer in the pre-filing periodgunjumping, etc.

Examples

-Gun jumping (is illegal, even if offeris subsequently registered it is still aproblem because it tainted the entireoffering),-A failed Reg D offering,-A failed 4(2) exemption,-Failed 3(a)(9) exchange offers,-Failed 3(a)(11) intrastate offering.

-Liability for fraud in registeredofferingif sales/offers in aregistered offering (not subject toSect 11 liability) are accomplished bymeans of materially false/misleadinginformation, purchasers can rescindtheir investment (12(a)(2)).-Offer or sale by means ofprospectus or oral communicationscontaining materially false ormisleading statement in a registeredoffering.

-Does not apply to public sales in thesecondary market.

Note: no liability under 12(a)(2) fora fraudulent disclosure documentother than a prospectus in aregistered offering.-Does not cover fraud in unregisteredofferingsprivate placementsexempt from registration (Gustafson),even though there are disclosureobligations to satisfy thoseexemptions.-Does NOT cover preliminary

prospectuses in a registered offeringor even prospectus-like offeringcirculars in a private placement.

Plaintiff Acquirer of registered securitiespeople who bought securitiespursuant to registration statement(on the primary or secondarymarket)

-Note: direct privity NOT required

Purchaser of unregistered securities

-Note: direct privity requiredonly

Purchaser of securities in aregistered offering

-Note: direct privity required.


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16/17

SOL SOX extended to 2 years after frauddiscovered and 5 yrs after fraudtook place

-Note: has to be discovered in first 5yrs!!!

PJ thinks that Sarbanes-Oxley hasextended the statute of limitations (13) to no more than 2 years after thefraud was discovered and 5 yearsafter the fraud took place, but it usedto be that a 12 claim had to bebrought within 1 year of discovery ofthe cause of action, and in no casemore than 3 years.

SOX extended to 2 years discovery/5yrs if fraud

Defenses No Defense for Issuers (strictliability)

Defenses for Non-Issuers1. Due Diligence (see Rule

176)depends onposition in the company(11b3)

2. Negative Causation3. Whistleblower (11b1)4. Director did not know the

registration statementbecame effective (11b2)

Strict liabilityno defenses 1. Due diligence (reasonablecare and no knowledge)issuer has a DD defense!!!

2. Loss causationD can geta reduction of damagesunder 12(b)

II. Private Right of Action Under 34 Act Who Can Be Sued?Description Bank Example Types of Action

PrimaryViolator

person who commits the act proscribed by the statute orrule.

the guy who robbed the bank wants to roba. Private & SEC

SecondaryViolator

either intentionally assists or supports the primary violatoror is liable b/c of a relationship with the violator.

the guy who drove the getaway car wantsto help rob

Private & SEC

Aider andAbettor

helps and facilitates, makes a given action possible, but NOintention of it happening/wrong place at the wrong time;gets no benefit from it happening, but without him itcouldnt happen

the guy who looks away and doesnt want toget involved, a bystander/ guy who watchesand doesnt call the cops doesnt care ifbank gets robbed or not

Only SEC (20e of34 Act)

ControlPeopleSee 20(a) of34 Act

every person who directly or indirectly controls any person liable under this provision (anyone who controlsprimary or secondary violators)

Defense: liability arises under 20(a) unless the controlling person acted in good faith and did not directly or

Private & SEC


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indirectly induce the act or acts constituting the violation or cause of action.

Documents

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