Series 79 practice questioneasyDue Diligence Defense
Under Section 11 of the Securities Act, which is a valid defense for an underwriter against liability for a material misstatement in a registration statement?
- AArguing the statement was immaterial
- BBlaming the issuer's management for the omission
- CDemonstrating that reasonable investigation and due diligence were performed✓ Correct answer
- DCiting a lack of investor losses
Explanation
Why C — Demonstrating that reasonable investigation and due diligence were performed
The due diligence defense requires that the underwriter show it conducted a reasonable investigation and believed the information was accurate. Blaming others or stating there was no loss does not satisfy the legal standard. Many confuse 'immateriality,' but only proper diligence provides a defense.
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