“The Ninth Circuit’s departure from the Security Act’s plain text upsets Congress’s carefully balanced liability framework in the Securities Act.”
—Cory Andrews, WLF General Counsel & Vice President of Litigation
Click here for WLF’s brief.
(Washington, DC)—Washington Legal Foundation (WLF) today urged the U.S. Supreme Court to overturn a decision by the U.S. Court of Appeals for the Ninth Circuit that drastically expands the scope of liability under federal securities law. WLF’s amicus brief was drafted with pro bono assistance from James N. Kramer of Orrick Herrington & Sutcliffe LLP.
The case arises from a suit under Section 11 of the Securities Act of 1933, which prohibits issuers from making material misstatements or omissions in a registered offering. For more than fifty years, the federal courts of appeal have uniformly held that to prove a violation of Section 11, a plaintiff first must “trace” their shares to the offering that contained the alleged misrepresentations or omissions. But a divided opinion of the Ninth Circuit swept aside that longstanding tracing requirement in favor of an expansive rule that far exceeds anything Section 11’s text can justify.
In its amicus brief urging reversal, WLF asked the Court to ensure that the tasks of crafting public policy and amending federal law are performed by Congress, not the courts. This constitutional limit is even more important here because Congress, by actively amending the Securities Act nearly thirty times over the past fifty years without negating the tracing requirement, has tacitly ratified the uniform construction of the other federal courts. Unless reversed, the Ninth Circuit’s outlier decision will unjustly expose issuers to expanded Section 11 liability and harm investors.