Question

One of the elements necessary to recover damages if there has been a material misstatement in a registration statement filed pursuant to the Securities Act of 1933 is that:

a. there was a material false or misleading statement in the financial statements.

b. the plaintiff knew the auditor.

c. issuer and plaintiff were in privity of contract with each other.

d. issuer failed to exercise due care in connection with the sale of the securities.

Answer 1

Answer:

a. there was a material false or misleading statement in the financial statements

Explanation

According to the Securities Act of 1933, if there is any material misstatement in a registration statement filed due to any reason then the plaintiff could recover damages. The material mistatement in a registration statement filed is a a material false or misleading statement in the financial statements. Thus it is one of the elements necessary to recover damages. So the option (a) is correct. They cannot recover the damage or treat it as damage if the plaintiff knew the auditor. So option (b) is incorrect. Option (c) is incorrect as the third party could sue with no privity of contract with issuer. Option (d) is incorrect as there is no proof of negligence/fraud is needed to bring it as per the Securities Act of 1933.