Who’s Liable For a Section 11 Violation?

Section 11 of the Securities Act holds people who were directly involved liable for registration statements filed with the Securities and Exchange Commission (SEC) “containing an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading.” 

According to Section 11, a person who purchases the security can sue any of the following parties:

  • People who signed the registration statement
  • Directors, people performing similar functions, or partners in the issuer at the time of registration statement was filed
  • People consensually named in the registration statement as being or about to become a director, person performing similar functions, or partner
  • Accountants, engineers, appraisers, or other professionals who prepared or certified the registration statement or a report or valuation used in connection with the statement
  • Underwriters

What Is Section 11 of the Securities Act?

Section 11 of the Securities Act is a federal law that allows investors to hold parties directly involved with a registered offering responsible for certain damages related to the security. For damages to qualify for a Section 11 claim, they must have been caused by untrue statements of fact or material omissions of fact in registration statements that were misleading at the time the statement became effective. 

Section 11 only applies to registration statements (including the prospectus and other required disclosures) and prospectus supplement. Purchasers usually cannot file lawsuits under Section 11 for false statements or material omissions in oral communications, preliminary prospectuses, roadshow presentations, analyst reports, or investor calls.

What Are Section 11 Claims?

A Section 11 claim is a lawsuit pursued under Section 11 of the Securities Act. 

Section 11 claims can be used by any person who purchased or otherwise obtained a security that has a material misstatement or omission in its registration statement. However, if you acquired the security after an earnings statement that included data for at least 12 months after the effective date of its registration statement was issued, you must prove that you actually relied on the false statement or omission in your decision to make the purchase.

Additionally, if you acquired the securities on the “aftermarket,” you must be able to trace the securities you own to the offering that coincided with the registration statement containing the misstatement or omission to pursue a Section 11 claim. This can be a challenging prospect when there have been multiple offerings or if securities have entered the market through non-offering means.

Have Questions?


The Ultimate Guide to Interlocutory Appeals

When Can a 12b6 Motion Be Raised?