Series 79 practice questioneasyDue Diligence Defense
Which of the following best describes the due diligence defense available to an underwriter under Section 11 of the Securities Act?
- AReasonable investigation and belief in accurate disclosure✓ Correct answer
- BIt is only available to the issuer of the securities, not the underwriter.
- CIt is automatically granted if the underwriter is a broker-dealer in good standing.
- DIt is only available in private placements, not registered offerings.
Explanation
Why A — Reasonable investigation and belief in accurate disclosure
Under Section 11 of the Securities Act, underwriters can assert a due diligence defense if they conducted a reasonable investigation and had reasonable grounds to believe the registration statement was true and complete. Issuers are strictly liable and do not have this defense. The defense is not automatic and requires proof of reasonable investigation.
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