Last Friday's post concerned liability under Section 12(a) of the Securities Act of 1933. As noted in the post, Section 12(a)(2), unlike Section 12(a)(1), is an antifraud statute. It imposes liability on any person who:
"offers or sells a security (whether or not exempted by the provisions of section 3, other than paragraphs (2) and (14) of subsection (a) thereof), by the use of any means or instruments of transportation or communication in interstate commerce or of the mails, by means of a prospectus or oral communication, which includes an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements, in the light of the circumstances under which they were made, not misleading (the purchaser not knowing of such untruth or omission), and who shall not sustain the burden of proof that he did not know, and in the exercise of reasonable care could not have known, of such untruth or omission,"
Therefore, liability, if any, under Section 12(a)(2) lies with only with sellers of securities.
Section 25401 was modeled upon Section 12(a)(2) but with an important difference. California's statute exposes buyers to liability for written communications that include material misstatements or omissions.
Damages are governed by Corporations Code Section 25501. If the defendant purchaser still owns the security, the plaintiff seller may sue for rescission. Upon rescission, the plaintiff seller may recover the security upon tender of the consideration paid plus interest at the legal rate, less the amount of any income received by the defendant seller on the security. If the defendant purchaser has resold the security, rescission is no longer an option. In those cases, a seller's damages are calculated as follows:
(Value of securities at the time of filing the complaint) - (the price at which the plaintiff sold the securities) + interest at the legal rate from the date of sale