Under Section 11 of the Securities Act of 1933, which of the following must a plaintiff prove to hold a CPA liable for a misstatement in a registration statement?

Answer options:

The plaintiff relied on the financial statements.

The CPA acted with scienter (intent to deceive).

The plaintiff suffered a loss and the financial statements contained a material misstatement.

The CPA was negligent.

How to approach this question

Contrast 1933 Act (Section 11) vs 1934 Act (Rule 10b-5). 1933 Act is 'pro-plaintiff': No reliance, no negligence, no scienter required to be proven by plaintiff. Just Loss + Misstatement.

Full Answer

C.The plaintiff suffered a loss and the financial statements contained a material misstatement.✓ Correct

The plaintiff suffered a loss and the financial statements contained a material misstatement.

Under Section 11 of the 1933 Act, a plaintiff need only show (1) they acquired the security, (2) they suffered a loss, and (3) the registration statement contained a material misstatement. Reliance and negligence are not initial elements for the plaintiff.

Common mistakes

Assuming reliance is required (it is for 1934 Act, not 1933 Section 11).

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