Disappearing Without a Trace: Sections 11 and 12(2) of the '33 Act
Posted: 29 Nov 1999
In this article, I examine the tracing doctrine that applies to sections 11 and 12(2) (the "Sections") of the Securities Act. Tracing, a judicial invention of Judge Henry J. Friendly, requires securityholders to prove that their securities were actually issued pursuant to an allegedly misleading offering. I demonstrate that tracing is nearly impossible and, therefore, plaintiffs are unable successfully to sue under these Sections. As a result, the purpose of the Securities Act, ensuring full and accurate disclosures in public offerings of securities, is defeated.
Despite its practical importance, this issue has not previously been analyzed. Therefore, I provide a discussion of these Sections and the cases interpreting them, as well as demonstrating that tracing is virtually impossible. I also propose a solution based on the rationale for the relaxed-rules of causation now applied to indeterminate plaintiffs (plaintiffs able to prove that exposure to a particular product causes the type of injury they suffered but not that their exposure to that product in fact caused their injury) in toxic-tort cases. These plaintiffs now present statistical evidence to meet their burden of proof on causation. Courts should use the same rule with section 11 and 12(2) plaintiffs, allowing them to employ statistics to show that it is more likely than not that their securities were issued in the questioned offering. This proposal would both limit the statute's reach and fulfill Congress's purposes in adopting it.
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