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← Series 63: Remedies & Administrative Provisions
Series 63 practice questionhardCivil Liabilities — Seller's Defense for Fraud

An agent is sued for making material misrepresentations during the sale of a registered security. Under the USA, the agent may avoid liability by proving that:

  1. AThe client is a sophisticated investor who should have known better
  2. BThe misrepresentation was made verbally rather than in writing
  3. CThe client made a profit on the transaction despite the misrepresentation
  4. DThe agent did not know, and in the exercise of reasonable care could not have known, of the misrepresentation✓ Correct answer
Explanation

Why D — The agent did not know, and in the exercise of reasonable care could not have known, of the misrepresentation

Under USA Section 410(a)(2), a seller facing a material-misstatement or omission claim may avoid liability by proving both lack of knowledge and that reasonable care could not have revealed the untruth or omission.

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