[§§716-723] 166 | SECURITIES REGULATION (1) Liability for improper disclosure or violation of section 5 registration pro visions [§716] Section 11 of the 1933 Act provides for liability where the issuer misrepressent or fails to state a material fact in the registration statement. In addition, liability may arise under section 12(a)(l) of the Act as the resuul of an improper offer in the pre-filing period (see supra, §111); failuur to deliver the required prospectus in the post-effective period (see supra, §178); or other violations of section 5. (2) Liability for fraud or misrepresentation in general [§717] In addition to the above, the 1933 Act includes liability provisions coveriin fraud or misrepresentation in the interstate sale of securities in generra (i.e., whether or not registration with the S.E.C. is involved). [SA §§12(a)(2), 17; and see discussion infra, §§799, 823] b. Remedies for 1933 Act violations [§718] A wide range of remedies is available in actions under the 1933 Act, dependiin in the first instance on the nature of the plaintiff. That is, there are differeen remedies available to the S.E.C. than are available to a private plaintiff (e.g., an aggrieved investor). (1) Private lawsuits [§719] When investors sue under the 1933 Act, they are typically looking to receeiv payment in compensation for what has turned out to be a bad investtment This may be accomplished in two ways: (a) Damages [§720] A plaintiff entitled to receive damages does not receive the full amount invested in the securities, but rather receives the amount lost (subject to certain limitations). Section 11 of the 1933 Act, discussse below, gives purchasers the right to receive damages. (b) Rescission [§721] A plaintiff receiving rescission gets back the full amount invested in the securities. In effect, the sale is reversed, the plaintiff returns the securities and gets back her cash. Section 12(a)(l) and (2) of the 1933 Act, discussed below, give purchasers the right to rescission. (2) S.E.C. lawsuits [§722] The S.E.C., as part of its enforcement responsibility, may sue persons alleege to have violated the 1933 Act. (Enforcement actions by the S.E.C. are discussed in more detail infra, §§1580 et seq.} In such an action, the S.E.C. has several kinds of remedies available: (a) Cease-and-desist orders [§723] Cease-and-desist orders resemble injunctions, in that each directs the respondent to stop violating the Act. [§§730-732] whenever it appears that the Act or the rules thereunder have been or are about to be violated. 1) Civil fines available in injunctive actions [§730] In addition to obtaining an injunction against future violations of the securities laws, the S.E.C. has the authority, in connectiio with any injunctive action, to seek civil monetary penaltiies [See SA §20, SEA §21] a) Amount of penalty [§731] The penalties that can be imposed are: I/Up to $5,000 ($50,000 for corporations) for each violation; 21 Up to $50,000 per violation ($250,000 for corporatioons for fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement; and 3/Up to $100,000 per violation ($500,000 for corporatiions if the violation meets the requirements of 2/, above, and in addition directly or indirectly caused substantial losses or created a significant risk of substanntia losses to other persons. (c) Criminal sanctions [§732] Section 24 of the 1933 Act imposes criminal penalties upon convictiio of a willful violation of any of the provisions of the 1933 Act, including violation of section 17(a), the general fraud provision of the 1933 Act. (See infra, §§820 et seq.) "Willful" violation of sectiio 17(a) means that the defendant had the intent to defraud or that he made representations without knowing whether or not they were true. It need not be shown that the defendant knew that a "securrity (as defined by the 1933 Act) was being sold or that defendaan knew he was violating some specific provision of the securities laws. [United States v. Brown, 578 F.2d 1280 (9th Cir. 1978)] EXAM TIP gilbert 168 I SECURITIES REGULATION If an exam question involves a person criminally charged under section 24 of the 1933 Act, remember that it is not a defense that the person did not know that the thing fraudulently sold was a security or that the sale violated the 1933 Act. The defendant need only have intentionally defrauded a victim or made representations without knowing whether they were truthful. Remember also that a willful violation of section 5 (e.g., failure to register offers of securities) can also be a criminal violatiion [§§739-743] (2) Lesser burden under 1933 Act [§739] In general, the liability provisions of the 1933 Act are less demanding on defrauded purchasers than was the common law. The 1933 Act makes recovery easier for purchasers of securities by lightening the burden of proof they must carry with respect to the above elements (see infra, §§749 et seq.). 2. Express Civil Liabilities a. Introduction [§740] The 1933 Act contains three express liability provisions. With the exception of section 11 (for material misstatements in an effective registration statemennt) none of these historically has been of major importance. The reason for this is that plaintiffs have preferred an action under rule 10b-5 of the 1934 Act (see infra, §§895 et seq.} or some other implied civil liability provisiion Courts generally held that these implied civil liabilities were subject to fewer restrictions than the actions under one of the express liability sections. However, these express liability provisions have become more important recenntl because the Supreme Court increasingly has restricted the availability of causes of action under rule 10b-5 and has held that no implied civil liabiliit will arise merely as the result of a violation of some section of the statutes or an S.E.C. rule. (See infra, §885.) b. Section 11—liability for misstatements or omissions in registration statement or prospectus [§741] Section 11 of the 1933 Act imposes liability on designated persons for materiia false or misleading statements or omissions in an effective registration statement or prospectus. [See SA §11 (a)] (1) Persons subject to liability [§742] The following persons can be held liable under section 11 for material misstatements in the registration statement or prospectus: (a) Every person who signs the registration statement [§743] Every person who signs a registration statement can be held liable for material misstatements or omissions in the statement. The followwin persons must sign the registration statement: (i) The issuer; (ii) The principal executive officers of the issuer; (iii) The principal financial officer of the issuer; (iv) The comptroller or principal accounting officer of the issuer; and 170 | SECURITIES REGULATION [§§752-754] 172 | SECURITIES REGULATION which have held that a fact is material when it is more probabbl than not that a significant number of traders in the securiit would have wanted to know it before deciding to deal in the security. [Feit v. Leasco Data Processing Equipment Corp., 332 F. Supp. 544 (E.D.N.Y. 1971)] fff^ Example—material facts: A Corp. decided to acquire B Corp. through an exchange of A's securities made directly with B's shareholders. However, A failed to disclose that a major reason for acquiring the target company (B) was the amount of surplus cash that could be drained from B into A. A's failure to make this disclosure and to disclose the estimaate amount of such cash (when estimates were known or could have been obtained from B's management) were held to be material omissions. [See Feit v. Leasco Data Processing Equipment Corp., supra] (b) Limited reliance requirement [§752] In general, the plaintiff need not prove that she purchased in reliannc on the misstatement to recover. 1) Exception—after-acquired securities [§753] However, if the issuer sends out an earnings statement coveriin the period of one year after the effective date of the registraatio statement, a person thereafter acquiring some of the registered securities must prove reliance on the misrepresentatiio or omission to recover. [SA §ll(a)] a) But note The plaintiff need not actually have read the registration statement to prove reliance. It is sufficient that she relied on secondary sources that repeated the misstatement. b) And note If any post-effective amendments are filed, the one-year period will run from their filing date rather than the filing date of the original registration statement. (c) Secondary market purchasers [§754] The language of 1933 Act section 11 provides a cause of action to "any person acquiring" the security that was the subject of the defecctiv registration statement. Until 1995, courts interpreted this to mean that even persons who purchased a security in the secondary market (as opposed to those who purchased the security in the issuer's public offering) could recover under section 11, as long as they could prove that the specific securities purchased were issued [§§758-760] 174 | SECURITIES REGULATION (a) General affirmative defenses [§758] Any defendant (including the issuer) subject to liability under sectiio 11 may claim the following defenses. [SA §ll(a)]: 1) That the alleged false statements were actually true; 2) That the misstatements or omissions were not of material facts; 3) That the plaintiff-purchaser knew of the misleading statements or omissions and invested in the securities anyway; and 4) That the statute of limitations has run. Under section 11, the period of limitations is one year after discovery of the false statement, with an overall limitation of three years after the security is first bona fide offered to the public. [See SA §13] This means that if a portion of the issue remains unsold after three years, for example in a continuous offering, purchasers after that time are not protected by section 11 of the Act. (b) Due diligence defense—experts and nonexperts [§759] In addition to the above defenses, all defendants (except issuers) have a "due diligence" defense under section 11. In applying this "due diligence" defense, section 11 makes a distinction between "experts," i.e., those who certify part of the registration statement as being true (such as certified public accountants who certify that the financial statements were prepared according to generally acceppte accounting principles), and "nonexperts," or all others who may be held liable pursuant to section 11. (See supra, §§742-748.) Section 11 also draws a distinction between the standard of care (i.e., what constitutes due diligence) required of nonexperts who reviie material prepared by other nonexperts, and that required of nonexperts reviewing statements of experts. [See SA §ll(a)] 1) Statements made by experts [§760] To avoid liability under section 11, experts may demonstrate that they have met the following test of "due diligence" as to representations they made in the registration statement: a) That they actually believed that the statements they made were true; and b) That their belief was reasonable. II For their belief to be reasonable, the experts must have made a reasonable investigation into the facts supporting the statements made. Normally, this means [§§763-765] with the same responsibilities, skills, etc., would have made. [Escott v. BarChris Construction Corp., supra] b) Application—attorney drafting registration statement [§763] An attorney who is also a member of the issuer's board of directors and who drafts the issuer's registration statemeen (and collects facts from the issuer to do so) does not "certify" his work and thus is a "nonexpert" as to the registration statement in general. [Escott v. BarChris Construction Corp., supra] \l Reasonable investigation by attorney [§764] In BarChris, the court indicated that the attorney-direccto did not have to conduct an independent audit of the issuer, but that a reasonable investigation would go beyond merely trusting the opinions and responses of the issuer's officers as to material facts. Therefore, a reasonable investigation by the attornne would include: a/Looking at original written records (e.g., writtte contracts) to verify statements in the registraatio statement; b/An examination of the issuer's facilities, operatioons material contracts, corporate minutes and other documents, and major items important to its financial condition; c/Use of a comprehensive questionnaire for directoor and officers to elicit information required to be disclosed (such as whether they had any conflicting interests); and d/Having an accountant check any suspicious items disclosed by the lawyer's investigation. 21 Distinguish—drafting attorney as corporate insider [§765] Note that if the lawyer drafting the registration statement becomes so involved with the issuer and the registration that he is held to be a "corporate insidder (like the other management officers), he will then be held to the same high standard of diligence as other officers (see infra, §770). [Feit v. Leasco Data Processing Equipment Corp., supra, §757] 176 | SECURITIES REGULATION [§§770-771] 178 I SECURITIES REGULATION syndicate to satisfy the due diligence requiremeent However, if the lead underwriter conducts a faulty investigation, this does not absolve the other underwriters. b/The S.E.C. has stated that a participating underwriite must be satisfied that the managing underwwrite has made the kind of investigation that the participant would have performed if it had been the manager. [See SA Release No. 33-5275 (1972)] 21 Inside directors and executive officers [§770] The standard of diligence imposed on directors who are also part of management (i.e., officers of the issuer) and on the principal executive officers of the issuer is even higher than that imposed on underwriters. a/Not all of the inside directors and executive officcer will be required to do the same things to show due diligence. What is required of each depends on the person's position, access to informmatio about the offering, etc. b/However, it is clear that these persons are virtuua guarantors of the accuracy of the registratiio statement, and it will be difficult for them to escape responsibility for material misstatemennts [See Feit v. Leasco Data Processing Equipment Corp., supra, §765] For example, if there are misstatements made relating to the issuer's financial condition, the issuer's chief finanncia officer will have a hard time sustaining his burden of showing that he really did not know of the misrepresentations. [See Escott V. BarChris Construction Corp., supra] 3/Outside directors [§771] Outside directors (those who are not employed by the issuer as part of management) must also meet the due diligence test for nonexperts. However, their position differs from inside directors in that althooug they must discharge the duty of a director, they cannot realistically be expected to do a great deal to check on the accuracy of the registration statement. Thus, the issue is how extensive is the duty of an outside director? STANDARDS OF DUE DILIGENCE gilbert EXPERTS Actual and reasonable belief that statement was true Requires reasonable investigation into facts, generally performed up to the standards of the profession. NONEXPERTS REVIEWING STATEMENTS OF OTHER NONEXPERTS • UNDERWRITERS • INSIDE DIRECTORS\ MANAGERS • OUTSIDE DIRECTORS Actual and reasonable belief that statement was true General standard: What a prudent person would do in the management of her own affairs. Lead underwriter must conduct a reasonable investigation; other underwriters must be satisfied that the lead underwriter made such an investigation. Virtual guarantors of the accuracy of the registration statement; probably liable no matter how diligent. Must attend directors' meetings during registration process; read minutes of meeting, registration drafts, etc. NONEXPERTS REVIEWING STATEMENTS OF EXPERTS No actual belief that statemeen was false and no reason to believe it was false Generally, nonexperts are entitled to rely on statements of experts, so no investigation is required unless facts show a potential problem. 180 | SECURITIES REGULATION [§§779-784] 182 I SECURITIES REGULATION (ii) The price at which the stock was sold after the suit was instituute but before judgment, if such damages are less than those that result from using the value at the time of the suit. [SASH(e)] (c) Determining value [§779] If a court is required to determine the value of the issuer's securities at the time of the suit, it may consider various factors besides the actual market value. For example, it may adjust market value to accooun for "panic selling" then taking place, which may depreciate the securities beyond their normal investment value. [Beecher v. Able, 435 F. Supp. 397 (S.D.N.Y. 1975)] (d) Plaintiff not required to mitigate damages [§780] If the plaintiff buys securities that decline in value due to misrepresentaation made in the registration statement and then files suit, she need not sell the securities to mitigate damages just because the market price begins to rise. Example: A buys debentures at $100 each. They decline to $75 at the time of the suit, rise to $100 while the suit is going on, but decline again to $70 just before judgment (at which time the plaintiff sells). The plaintiff's damages are measured by the differrenc in the price she paid ($100) and the value at the time of the suit ($75). [Beecher v. Able, supra; and see SA §ll(e)(3)] (e) Limits on recovered amount 1) Offering price as ceiling [§781] In no case can the amount recovered exceed the price at which the security was offered to the public. [SA §ll(g)] 2) Liability of underwriter [§782] Also, the total liability of an underwriter cannot exceed the offerrin price of the securities that the underwriter sold to the public. [SASH(e)] 3) Loss causation defense [§783] Finally, the defendant is not liable for damages that are proven to result from factors other than the misstatement in the registraatio statement. (See supra, §§756 et seq.} (f) Joint and several liability—contribution [§784] All persons (except outside directors) who are liable under section [§§790-795] 184 | SECURITIES REGULATION when the Supreme Court decided Pinter v. Dahl, 486 U.S. 622 (1988). 1) Facts of Pinter [§790] Pinter, an oil and gas operator and securities broker, sold unregisstere oil and gas interests to Dahl in an attempted private placement. Later, Dahl solicited some of his friends to purchhas additional interests, because Dahl believed the interests were good investments. Pinter sold the interests to DahPs friends on the strength of Dahl's representations that the friends qualified as private placement investors. It turned out that the friends were not qualified private placement investors, and when the investment became worthless, Dahl and his friends sued under section 12(a)(l). Pinter counterclaimed, allegging among other things, that Dahl was a "seller" under sectiio 12(a)(l) and therefore that Dahl was required to contribute toward the amounts awarded the other plaintiffs. 2) Definition of "seller" [§791] The Supreme Court held in Pinter that a "seller" for section 12(a)(l) purposes includes: a) The person who actually passes title to the security; and b) Persons who solicit the purchase from the purchaser. 3) Persons who are not sellers [§792] Under Pinter, however, the term "seller" does not include persoon whose sole motivation in acting is to benefit the buyer. (2) Defenses to a section 12(a)(l) cause of action (a) No sale of a "security" [§793] One defense to a section 12(a)(l) cause of action is to prove that there was no offer or sale of a "security" as that term is defined in the 1933 Act. (See discussion supra, §§110 et seq.) (b) No violation of section 5 [§794] Another defense is that no violation of section 5 ever occurred (i.e., the offering of securities was exempt from the registration provisiion of section 5 of the 1933 Act). (c) No privity [§795] Unlike section 11, section 12(a)(l) imposes a condition of privity of contract between the plaintiff-purchaser and the seller-defendant. Therefore, a common defense to a section 12(a)(l) action is that no privity of contract existed. [§§800-803] 186 | SECURITIES REGULATION (ii) By means of a prospectus or oral communication that contains an untrru statement or omission of material fact (the purchaser not knowing of such untruth or omission); and (iii) Who cannot sustain the burden of proof that he did not know and in the exercise of reasonable care could not have known of the untruth is liable to the purchaser of the security. [See SA §12(a)(2)] (1) Scope of section 12(a)(2) actions [§800] Except with respect to securities exempt under section 3 (a) (2) (certain government and bank securities), section 12(a)(2) applies whether or not the securities were registered pursuant to section 5 of the Act, whether or not they were offered under an exemption from the Act, and whether the securities were offered in writing or orally. &f± Example: If XYZ Corp. makes an offering of its securities, section 12(a)(2) applies to any misrepresentations made by XYZ, whether the offering is registered or unregistered (i.e., even though XYZ uses an exemption from registration, such as the private offering exemption). (2) Plaintiff's cause of action [§801] A buyer bringing a section 12(a)(2) action may sue for rescission to recoove the consideration paid for the securities, plus interest, and less any income received; or for damages, if the securities have already been sold. In either case, the plaintiff must show the following: (a) Sale of a security [§802] The plaintiff must prove that there has been an offer or sale of a "security" as that term is defined in the 1933 Act (see supra, (b) Use of jurisdictional means [§803] The cases have held that the language of section 12(a)(2) requires that liability be limited to persons "who offer or sell securities by use of any means or instruments of transportation or communicatiio in interstate commerce or the mails." [United States v. Robertson, supra] 1) Note Most decisions have indicated that this requirement is satisfied if any part of the sale (including delivery after the sale) invollve such means. [United States v. Robertson, supra] 2) Application Thus, as long as any means of doing interstate commerce is used (e.g., use of a phone or mail service), this is sufficient L§§806-808] c) Significance of Gustafson Gustafson has been widely criticized because it fails to take into account the definition of "prospectus" in SA section 2(a)(10) (see supra, §132). However, it seems clear that for now section 12(a)(2) will not apply to privaate secondary sales of securities. Moreover, the Court apparently considers section 12(a)(2) to apply only to primaar public offerings by issuers or their shareholders, thus foreclosing application of section 12(a)(2) to public sales in the secondary market. This restrictive reading of the 1933 Act parallels some of the Court's recent decisiion under the 1934 Act (e.g., Central Bank v. First Intersstat Bank, infra, §1517) and may foreshadow additional decisions still to come. (d) Untrue statement or omission of material fact [§806] The plaintiff must also show that there was an untrue statement of, or an omission to state, a material fact. Example: D was an exclusive dealer in Penn Central notes and sold a large note to P shortly before Penn Central went bankrupt. D knew that P was required by law to purchase only the highest quality notes, that Penn Central had large losses, and that other banking firms were removing Penn Central notes from their approved buying lists. D's opinion as to the quality of the security was a material fact under section 12(a)(2). [See Franklin Savings Bank of New York v. Levy, 551 F.2d 521 (2d Cir. 1977)] Note: The court in Franklin indicated that D's knowledge that P was required to purchase only the highest quality notes constituted a representation that the note it sold to P was of the highest quality. Such a representation is a misrepresentation (if untrue) unless D makes a reasonable investigation of the financial facts and exercises reasonable care in arriving at a conclusion as to quality. (e) Defendant's knowledge of the untrue statement [§807] The plaintiff must plead that the defendant knew, or in the exercise of reasonable care should have known, of the untrue statement. However, the defendant then must bear the burden of proof on the issue (i.e., that he did not know, and in the exercise of reasonable care could not have known, of the untrue statement). (f) No reliance or causation [§808] Note that the plaintiff need not prove reliance on the misrepresentation (see supra, §804). Section 12(a)(2) requires, however, that the sale be accomplished by means of a prospectus (or oral communication) [§§817-820] who "offer or sell" a security. Pinter (supra, §791) addressed the question of participant liability and who is deemed a "seller," but only with respect to section 12(a)(l). The Court expressly reserved any decision on the parallel requirement in section 12(a)(2). Lower courts addressing the issue since Pinter, however, have generally held that Pinter applies to section 12(a)(2), as well as to section 12(a)(l). [See, e.g., Royal American Managers, Inc. v. IRC Holding Corp., 885 F.2d 1011 (2d Cir. 1989)] Consequently, the same rules presently apply to participant liability under section 12(a)(l) and (2). (f) Statute of limitations [§817] The period of limitations for a section 12(a)(2) cause of action is one year after discovery of the false statement or material omission, or after such discovery should have been made in the exercise of reasonable diligence, but not more than three years after the sale. 1) Laches [§818] It is uncertain whether laches applies to section 12(a)(2) actioons (g) Loss causation in section 12(a)(2) cases—section 12(b) [§819] In an action brought under section 12(a)(2), the defendant can escaap liability to the extent that she can prove that all or any portion of the loss otherwise recoverable under section 12(a)(2) was caused by something other than the defendant's alleged misstatement or omission. [SA §12(b)] This defense is similar to the defense availabbl under section 11, where a defendant is permitted to establish that some or all of the plaintiff's loss arises from factors other than the misrepresentation. (See supra, §757.) 1) Note The difficulty with this defense lies in its requirement that the defendant "prove" that something in particular caused the loss. It is notoriously difficult to prove why the price of a securiit changed at any particular time, and under new SA section 12(b), the burden falls on the defendant to do so. The great majority of cases under section 12(a)(2) (in which such proof is not available) will be unaffected by this defense. 3. Section 17—S.E.C. Anti-Fraud Enforcement a. Criminal liability and injunctions [§820] As discussed above, sections 11, 12(a)(l), and 12(a)(2) of the 1933 Act provide plaintiffs with express causes of action based on specific types of misconduct in connection with the issuance of securities. These sections, however, are not 190 I SECURITIES REGULATION [§§825-831] have to prove that the defendant acted intentionally or with actual knowledge. [Sanders v. John Nuveen & Co., 554 F.2d 790 (7th Cir. 1977)] (2) Injunctive actions brought by the S.E.C. [§825] However, the Supreme Court has held that in civil injunctive actions brought by the S.E.C., a distinction must be made between the various subsections of section 17(a). Subsection 17(a)(l) requires a showing of scienter, while the two remaining subsections require only a showing of negligence. [Aaron v. S.E.C., 446 U.S. 680 (1980)] 4. Liability Under the Securities Exchange Act of 1934 [§826] A complete understanding of the liability provisions of the 1933 Act is impossible without also considering the provisions of the 1934 Act. The provisions of each statute overlap, and each has advantages and disadvantages in comparison with the others. (See discussion of 1934 Act provisions infra, §§895 et seq.} 5. Indemnification a. Officers, directors, and control persons [§827] Officers, directors, and control persons of an issuer may be exposed to substanntia liability under the securities laws and substantial litigation expenses in defense of securities actions. The laws of the various states vary as to whether and to what extent these persons (acting as representatives for the corporatiion may be indemnified against such liability by the issuer. (1) No judicial decision [§828] There is no direct judicial authority on the question whether indemnificattio of officers, directors, or control persons by the issuer against liabilitiie and expenses incurred in connection with the 1933 Act is unlawful. When such a decision comes, it will undoubtedly be based on the policy considerations underlying the 1933 Act. (2) Policy of the S.E.C. [§829] It is currently the policy of the S.E.C. that before it will approve a registraatio statement, indemnification must either be waived by such persoon or a statement must be made in the prospectus to the effect that the S.E.C. considers such indemnification against the policy of the 1933 Act (and therefore unenforceable) and that such persons promise to submit the question (if it arises) to a court of competent jurisdiction for a decisiion [Regulation S-K Item 512(h)] (a) Sanction [§830] The S.E.C. will deny acceleration of the effective date of the registraatio statement unless this statement is made in the prospectus. b. Underwriters [§831] Note that indemnification by the issuer of the underwriters is common. The 192 I SECURITIES REGULATION [§§839-840] policies are available. Insurance policies are not uniform with respect to what conduct they insure against; however, most do not insure against willful miscondduct b. S.E.C. policy [§839] Thus far, the S.E.C. has drawn a distinction between indemnification and insurranc and has not discouraged insurance. [SA Rule 461(c)] (1) Rationale The reasons for this distinction are: (a) If insurance were unavailable, the cost to the issuer's shareholders arising from liability could be high; (b) Underwriters might refrain from marketing securities; and (c) Directors and others might be unwilling to serve companies in volved in the registration process. 8. Stipulations Contrary to Liability Provisions Void [§840] Any condition, stipulation, or provision (as in a contract of sale) purporting to bind any person acquiring any security to waive compliance by the seller with any of the provisions of the 1933 Act or its rules and regulations is void. [SA §14] /** Example: A sold B stock in an unregistered public offering. Later, A offered to return the money for the stock and gave B 10 days in which to respond to the rescission offer. B did not respond. Still later, B sued for rescission under what is now section 12(a)(l) of the 1933 Act. The court held that B had not waived his rights under the 1933 Act by failing to respond to A's offer of rescission. [Meyers v. C & M Petroleum Producers, Inc., 476 F.2d 427 (5th Cir. 1973)] 194 I SECURITIES REGULATION