LIABILITY OF CONTROLLING PERSONS
Who may be liable? Every person who controls any person liable under this Code or the rules or regulations of the Commission thereunder, shall also be liable jointly and severally with and to the same extent as such controlled persons to any person to whom such controlled person is liable (Sec. 51.1)
Note: ‘Control’ may be by or through stock ownership, agency, or otherwise, or in connection with an agreement or understanding with one or more other persons (Sec. 51.1) Defense: Lack of knowledge of the existence of facts by reason of which the liability of the controlled person is alleged to exist (Sec. 51.1)
LIABILITY OF DIRECTOR/OFFICER FOR DELAY IN THE FILING OF REQUIRED DOCUMENTS
It shall be unlawful for any director or officer of, or any owner of any securities issued by, any issuer required to file any document, report or other information under this Code or any rule or regulation of the Commission thereunder, without just cause, to hinder, delay or obstruct the making or filing of any such document, report, or information (Sec.
51.2)
LIABILITY OF AIDER/ABETTOR
It shall be unlawful for any person to aid, abet, counsel, command, induce or procure any violation of this Code, or any rule, regulation or order of the Commission thereunder (Sec. 51.3)
Every person who substantially assists the act or omission of any person primarily liable under Sections 57, 58, 59 and 60 of this Code, with knowledge or in reckless disregard that such act or omission is wrongful, shall be jointly and severally liable as an aider and abettor for damages resulting from the conduct of the person primarily liable (Sec. 51.4)
BUT an aider and abettor shall be liable only to the extent of his relative contribution in causing such damages in comparison to that of the person primarily liable, or the extent to which the aider and abettor was unjustly enriched thereby, whichever is greater (Sec. 51.4)
Note: It shall be unlawful for any person, directly, or indirectly, to do any act or thing which it would be unlawful for such person to do under the provisions of this Code or any rule or regulation thereunder (Sec. 51.2)
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Civil Liability Who May Be Liable? Who May Sue?
When the registration statement or any part thereof contains on its effectivity:
(a) An untrue statement of a material fact; or
(b) Omission to state a material fact required to be stated therein or necessary to make such statements not misleading
(a) Issuer and every person who signed the registration statement;
(b) Director of/partner in the issuer at the time of the filing of the registration statement or any part, supplement or amendment thereof;
(c) One who is named in the registration statement as being or about to become (b);
(d) Auditor/auditing firm named as having certified any financial statements used in connection with the registration statement or prospectus;
(e) One who, with his written consent filed with the registration statement, has been named as having prepared or certified any part of the registration statement/any report or valuation which is used in connection with the registration statement;
(f) Selling shareholder who contributed to and certified as to the accuracy of a portion of the registration statement;
(g) Underwriter with respect to such security (Sec. 56.1)
Any person who acquires the security and who suffers damage unless it is proved that at the time of such acquisition he knew of such untrue statement or omission (Sec. 56.1)
Note: When the security is acquired after the issuer has made generally available to its security holders an income statement covering a period of at least twelve (12) months beginning from the effective date of the registration statement, the right of recovery under this subsection shall be conditioned on proof that such person acquired the security relying upon such untrue statement in the registration statement or relying upon the registration statement and not knowing of such income statement (Sec. 56.2)
In Connection With Prospectus, Communications and Reports (Sec. 57) A. Liability of Sellers/Offerors
(a) Offeror or seller of a security in violation of Chapter on Registration of Securities;
(b) Offeror or seller of a security, whether or not exempted by the provisions of this Code, by means of a prospectus or other written 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).
Defense: No knowledge of untruth or omission, despite the exercise of reasonable care (Sec. 57.1).
Purchaser of the security may sue to recover:
(1) consideration paid for such security with interest thereon, less the amount of any income received thereon, upon the tender of such security; or
(2) for damages if he no longer owns the security (Sec. 57.1).
In Connection With Prospectus, Communications and Reports (Sec. 57)
B. Liability of Makers of False Misleading Statements
Any person who shall make or cause to be made any statement in any report, or document filed pursuant to this Code or any rule or regulation thereunder, which statement as at the time and in the light of the circumstances under which it was made false or misleading with respect to any material fact, shall be liable to Defense: Good faith and lack of knowledge of the false and misleading statement (Sec. 57.2).
Purchaser or seller of security who purchased or sold at a price which was affected by such statement knowing that such statement was false or misleading, and relying upon such statement may sue for damages caused by such reliance (Sec.
57.2).
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Fraud in Connection with Securities
Transactions (Sec. 58) Any person who engages in any act or transaction in violation of Sections 19.2, 20 or 26, or any rule or regulation of the Commission thereunder
Any other person who purchases or sells any security, grants or refuses to grant any proxy, consent or authorization, or accepts or declines an invitation for tender of a security who sustained damages as a result of the transaction.
Manipulation of Security Prices (Sec. 59) Any person who willfully participates in any act or transaction in Section 24 (Manipulation of Security Prices).
Any person who shall purchase or sell any security at a price which was affected by such act or transaction
With Respect to Commodity Futures
Contracts and Pre-need Plans (Sec. 60) Any person who engages in any act or transactions in willful violation of any rule or regulation promulgated by the Commission under Section 11 (on Commodity Future Contracts) or 16 (on Pre-Need Plans) (Sec. 60.1)
Any person sustaining damages as a result of such act or transaction (Sec. 60.1)
On Account of Insider Trading A. Liability for non-disclosure
(a) Any insider who violates Subsection 27.1;
(b) and any person in the case of a tender offer who violates Subsection 27.4 (a)(I), or any rule or regulation thereunder, by purchasing or selling a security while in possession of material information not generally available to the public (Sec. 61.1)
Any investor who, contemporaneously with the purchase or sale of securities that is the subject of the violation, purchased or sold securities of the same class unless such insider, or such person in the case of a tender offer, proves that such investor knew the information or would have purchased or sold at the same price regardless of disclosure of the information to him (Sec. 61.1)
On Account of Insider Trading
B. Liability for communicating non-public information about issuer
(a) An insider who violates Subsection 27.3;
OR
(b) any person in the case of a tender offer who violates Subsection 27.4 (a), or any rule or regulation thereunder communicating material nonpublic information shall be jointly and severally liable under Subsection 61.1 with, and to the same extent as, the insider, or person in the case of a tender offer, to whom the communication was directed and who is liable under Subsection 61.1 by reason of his purchase or sale of a security (Sec.
61.2).
Of Controlling Persons, Aider and Abettor and Other Secondary Liability
A. Liability of Controlling Persons
Every person who controls any person liable under this Code or the rules or regulations of the Commission thereunder, shall also be liable jointly and severally with and to the same extent as such controlled persons to any person to whom such controlled person is liable (Sec. 51.1)
NOTE: ‘Control’ may be by or through stock ownership, agency, or otherwise, or in connection with an agreement or understanding with one or more other persons (Sec. 51.1)
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Defense: Lack of knowledge of the existence of facts by reason of which the liability of the controlled person is alleged to exist (Sec. 51.1)
Of Controlling Persons, Aider and Abettor and Other Secondary Liability
B. Liability of Director/Officer for Delay in the Filing of Required Documents
It shall be unlawful for any director or officer of, or any owner of any securities issued by, any issuer required to file any document, report or other information under this Code or any rule or regulation of the Commission thereunder, without just cause, to hinder, delay or obstruct the making or filing of any such document, report, or information (Sec. 51.2)
Of Controlling Persons, Aider and Abettor and Other Secondary Liability
C. Liability of Aider/Abettor
It shall be unlawful for any person to aid, abet, counsel, command, induce or procure any violation of this Code, or any rule, regulation or order of the Commission thereunder (Sec. 51.3) Every person who substantially assists the act or omission of any person primarily liable under Sections 57, 58, 59 and 60 of this Code, with knowledge or in reckless disregard that such act or omission is wrongful, shall be jointly and severally liable as an aider and abettor for damages resulting from the conduct of the person primarily liable (Sec. 51.4) BUT an aider and abettor shall be liable only to the extent of his relative contribution in causing such damages in comparison to that of the person primarily liable, or the extent to which the aider and abettor was unjustly enriched thereby, whichever is greater (Sec. 51.4) Note: It shall be unlawful for any person, directly, or indirectly, to do any act or thing which it would be unlawful for such person to do under the provisions of this Code or any rule or regulation thereunder (Sec. 51.2)
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