A Shaky Future for Securities Act Claims Against Mutual Funds

Abstract

The article considers the liability of mutual fund issuers under Sections 11(a) and 12(a)(2) of the Securities Act of 1933. In a Securities Act Section 11(a) or Section 12(a)(2) action, a plaintiff complains of a materially misleading statement in an issuer's registration statement. The article explains why a mutual fund issuer, by establishing a loss causation defense, should prevail in defending these actions. For a mutual fund, establishing a loss causation defense is straightforward, and a mutual fund can defeat Section 11(a) and Section 12(a)(2) claims at the pleading stage of a lawsuit. In effect, mutual funds and related defendants are largely and, perhaps, wholly insulated from Securities Act Section 11(a) and Section 12(a)(2) claims.

Keywords: Securities Act, 11(a), 12(a)(2), issuer liability, anti-fraud, mutual funds, loss causation