Brief Fact Summary. Dahl (Plaintiff) alleged that he was not a seller of securities as to securities he had advocated due to him doing so unnecessarily.
Synopsis of Rule of Law. One who unnecessarily advocates unregistered Securities is not a seller for reasons of the Securities Act.Â
The plaintiff must be an active, voluntary participant in the unlawful activity that is the subject of the suit.View Full Point of Law
Issue. Does unnecessarily advocating unregistered securities make you a seller under the Securities Act?
Held. (Blackmun, J.) No. Advocating unregistered securities does not make you a seller as defined by the Securities Act. The court of appeals was incorrect in holding that the in pari delicto defense is unattainable; no precedent exists for holding that it is unattainable in a strict liability action like one under Â§ 12 of the Securities Act, neither is it a holding based on any reasonable opinion of congressional purpose. The question is if Dahl be considered a â€œsellerâ€ under the Securites Act, making him liable alongside Pinter to the other investors.Â In the most literal way, a â€œseller’ is the person passing title only, however, it has long been true that offerors and titleholders are considered sellers. This extends seller liability to those who aggressively advocate or petition the sale of securities.Â Consistent with the holding is advocating transparencies to the buyers of securities, which is the congressional purpose behind the Act. Although, in a situation where an individual advocates a stock unnecessarily, as a favor to the offeree, the intent is not advance; the threat of advocate predation upon the unwary does not exist. SÂ§ 12 of the Act is not applicable if someone, who may otherwise be a seller, advocates a stock not for his or anyone else’s gain but as a favor to the offeree. In this case, it is uncertain from the documentation if the district court ruled on this matter, so the issue must be decided on remand. Reversed and remanded.
Discussion. By entitling a purchaser to full rescission, which is sometimes a difficult solution, Â§ 12 is a considerably cruel stipulation. Serious questions of fairness arise when it is applied to collateral participants in the offering. In cases previous to this, some courts of appeal had extended its application to rather marginal participants. While Pinter does not seem particularly sweeping in its effect, it may deter lower courts from adopting as wide a definition of â€œsellerâ€ as they otherwise might.