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Securities Regulation
Santa Clara University School of Law
Diamond, Stephen F.

Securities Regulation
Prof. Stephen Diamond
Office: x
Office Hours:
1)       Introduction
a)       Class Notes 08-16-04
b)       Articles – Striking it rich, and the Nudist on the Lateshift discussion
i)         Class Notes 08-18-04
2)       Civil Liability Under the ’33 Act
a)       Section 11 in a nutshell
i)         A suit may be brought under § 11 by any person who acquired a registered security whether in the registration process or in the secondary market
ii)       All plaintiff must prove is that “any part of the registration statement, when such part became effective, contained an untrue statement of a material fact or omitted to state a material fact required to be state therein or necessary to make the statements therein not misleading.” 
(1)    “materiality” and “misrepresentation or omission” are distinct concepts.
iii)      Normally the plaintiff need not prove reliance unless the plaintiff bought after the issuer had made generally available to its security holders an earnings statement covering a period of at least a year beginning after the effective date; but even then, “reliance may be established without proof of the reading of the registration statement by such person.”
iv)      The plaintiff need not prove causation, but damages are reduced to the extent that the defendant proves that the damages did not result from his or her misconduct.
v)        Possible defendants under § 11
(1)    The registrant, e.g. issuing corporation, person who signed the registration statement
(2)    All directors of the issuer including persons “named” or “about to become” directors.
(3)    All other persons who sign the registration statement, including CEO, CFO, CAO who must sign irrespective of whether or not they are directors.
(4)    All underwriters
(5)    Any expert who is named as having prepared or certified any part of the registration statement (this will always include accountants, and can include others such as geologists or other experts rendering opinions for the registration statement.)
vi)      Under § 11, an issuer’s liability is absolute, but with one exception: The issuer has the defense available to all defendants of showing that the plaintiff knew of the untruth or omission at the time the plaintiff acquired the security.
vii)     For other defendants an elaborate series of reasonable care or due diligence defenses are available.
(1)    Defendant may argue that he severed all ties with the issuer before the registration statement became effective, etc. See p. 874-75.
viii)   Escott v. BarChris Construction Corp. (1968) p.875
(1)    See class notes.
(2)    Class Notes 08-23-04
3)       Financial Markets
a)       Structure
i)         The financial market is broad, in the sense that securities are only a subset of the overall financial market. Bank loans are a big piece of financial markets but are not securities.
ii)       Purpose
(1)    Mat

lacements, not subject to SecReg.
iv)      Bonds, essentially.
h)       Derivative Product Markets
i)         Contractual instruments that drevie their value from the values of underlying instruments or commodities upon which they are based.
(1)    Forward contracts
(2)    Options
i)         Swaps. P.19
j)         P.56
i)         NYSE Rule 80A, 80B
ii)       12(k), 13(h) of the ’34 Act
4)       Regulatory Framework
a)       SEC administers six statutes
i)        Securities Act of 1933
(1)    Essentially, prohibits the offer or sale of a security, except in certain exempt transactions, unless the security has been registered with the SEC; it also requires the delivery of a prospectus to a purchaserand to other persons to whom a written offer is made.
(2)    Very favorable cause of actions exists for plaintiffs if there is a materially misleading statement or omission.
ii)      Securities Act of 1934
(1)    As modified by SOX 2002
(a)     See text p. 69-70 for details
(2)    Requires broker dealers to register with NASD and SEC
(3)    Prescribes required disclosures and regulation thereof by SEC
Regulates amount of margin available in the markets.