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Series 79 practice questionmediumSection 11 and Section 12 Liability

How does Section 12(a)(1) liability differ from Section 11 liability?

  1. ASection 12(a)(1) imposes liability for selling securities in violation of Section 5 registration requirements, while Section 11 addresses material misstatements in the registration statement✓ Correct answer
  2. BSection 12(a)(1) applies only to secondary market transactions
  3. CSection 12(a)(1) has a longer statute of limitations than Section 11
  4. DSection 12(a)(1) applies only to fraud, while Section 11 applies to negligence
Explanation

Why A — Section 12(a)(1) imposes liability for selling securities in violation of Section 5 registration requirements, while Section 11 addresses material misstatements in the registration statement

Section 12(a)(1) creates strict liability for any person who offers or sells a security in violation of Section 5's registration requirements (i.e., selling unregistered securities without an applicable exemption). The remedy is rescission (the buyer can demand their money back). Section 11, by contrast, applies to registered offerings where the registration statement contains material misstatements or omissions. Section 12(a)(1) does not require proof of materiality or reliance; the mere violation of the registration requirement is sufficient for liability.

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