SECURITIES LITIGATION | 2026-09-29

Sections 11 and 12: Liability for a False Registration Statement or Prospectus

When a registered offering’s disclosure is materially wrong, the Securities Act imposes some of the strictest liability in securities law — including near-strict liability for the issuer. Here is how Sections 11 and 12 work.

Registered securities offerings carry a powerful liability regime for defective disclosure. Section 11 of the Securities Act imposes liability for material misstatements or omissions in a registration statement, and Section 12 imposes liability in connection with a prospectus or the sale of a securi

Get the disclosure in a registered offering wrong, and Sections 11 and 12 of the Securities Act can impose liability without any need to prove fraud.

Section 11 — Liability for the Registration Statement

Section 11 of the Securities Act imposes civil liability when a registration statement, at the time it became effective, contained an untrue statement of a material fact or omitted a material fact required to be stated or necessary to make the statements not misleading. A purchaser of the registered securities generally can sue without proving reliance or the defendant’s state of mind — the focus is on the accuracy of the document.

Who Is Liable Under Section 11

Section 11 reaches a defined group of potential defendants, including:

• the issuer — for which liability is essentially strict (no due-diligence defense);
• the directors and persons about to become directors;
• the signers of the registration statement (including the CEO, CFO, and principal accounting officer);
• underwriters; and
• experts (such as auditors) as to the portions they prepared or certified.

The Due Diligence Defense

Except for the issuer, the other defendants can avoid Section 11 liability by establishing a due diligence defense — generally, that after reasonable investigation they had reasonable ground to believe, and did believe, that the statements were true and there was no material omission (with a lower standard for the “expertised” portions prepared by others). The classic case of Escott v. BarChris illustrates how demanding this investigation must be. Due diligence is why underwriters and directors conduct extensive review before an offering.

Section 12 — Prospectus and Sale Liability

• Section 12(a)(1) imposes liability for selling a security in violation of the registration requirements (an unregistered, non-exempt offering), allowing the buyer to rescind.
• Section 12(a)(2) imposes liability on a seller who offers or sells a security by means of a prospectus or oral communication that contains a material misstatement or omission, again without requiring proof of intent, subject to a reasonable-care defense.

Damages and Defenses

Section 11 provides a statutory damages measure (generally tied to the difference between the amount paid and the value/price at specified times), and defendants can reduce damages by proving that some or all of the decline was caused by factors other than the misstatement (negative causation). Because liability can be severe and largely fault-independent (for the issuer), the offering document’s accuracy — and the due-diligence record supporting it — is the central protection.

Frequently Asked Questions

What is Section 11 liability?

Civil liability for material misstatements or omissions in a registration statement, provable generally without reliance or intent — the issuer’s liability is essentially strict.

Who can be sued under Section 11?

The issuer, directors, signers (CEO/CFO/principal accounting officer), underwriters, and experts as to portions they prepared.

What is the due diligence defense?

For defendants other than the issuer, a defense that after reasonable investigation they reasonably believed the disclosures were true — the reason for extensive pre-offering review.

How is Section 12 different?

Section 12(a)(1) covers selling in violation of registration; Section 12(a)(2) covers sales by means of a materially misleading prospectus or communication, subject to a reasonable-care defense.

Related Securities & Governance Guides

• SEC Form S-1 registration
• The PSLRA

Talk to a Securities Attorney About Offering Liability

If your California company is conducting a registered offering, Sections 11 and 12 make the disclosure’s accuracy critical. Trembach Law Firm advises on Securities Act liability and due diligence. Call (818) 514-7680.

Contact Trembach Law Firm at (818) 514-7680 for a confidential consultation.

Trembach Law Firm | 27001 Agoura Road, Suite 350, Calabasas, CA 91301