ding Am., Inc., 873 F.3d 85, 99 (2d Cir. 2017) (quoting, NECA-IBEW Health & Welfare Fund v. Goldman Sachs & Co., 693 F.3d 145, 156 (2d Cir. 2012)).Basic Inc. v. Levinson, 485 U.S. 224, 236 (1988).Ganino v. Citizens Utils. Co., 228 F.3d 154, 162 (2d Cir. 2000) (quoting, Basic, 485 U.S. at 231-32).In the Matter of Netshoes Sec. Litig., 64 Misc. 3d 926 (Sup. Ct., N.Y. County 2019); Nadoff v. Duane Reade, Inc., 107 Fed. App’x 250, 252 (2d Cir. 2004).In re Morgan Stanley Info. Fund Sec. Litig., 592 F.3d 347, 359 (2d Cir. 2010).See 15 U.S.C. § 77k(e) (“[I]f the defendant proves that any portion or all of such damages represents other than the depreciation in value of such security resulting from [the alleged misstatement or omission], such portion of or all such damages shall not be recoverable.”).Fed. Hous. Fin. Agency, 873 F.3d at 154 (alterations and internal quotation marks omitted).Akerman v. Oryx Commc’ns, Inc., 810 F.2d 336, 341 (2d Cir. 1987).Morgan Stanley, 592 F.3d at 359 (citing, 15 U.S.C. § 77l(a)(2)).Id.Id. (quoting 15 U.S.C. § 77l(a)(2)).Netshoes, 64 Misc. 3d at 933 (quoting, 15 U.S.C. §77m).Id. at 930.Benn v. Benn, 82 A.D.3d 548, 548 (1st Dept. 2011).Slip Op. at *2.Id. at **1, 4.Id. at *1.Id.Id. at n.1 (citations omitted). See also id. at *4.Id. (citation omitted).Id. at **1 and 4 (citing, American Pipe & Const. Co. v. Utah, 414 U.S. 538, 553-555 (1974)).Id. at **1 and 5.Id. at *1.Id.Id.Id.Id. (citations omitted).Id.Id.See also id. at *5.

first Regulation A of its kind to raise $50 Million in crowdfunding using social media,” with the CEO stating that “[b]y accessing social media, I am offering investment opportunities to the everyday investor, like you!” Id. One such video allegedly included the CEO’s statement: “You’re gonna walk away with a 15% annualized return. If I’m in that deal for 10 years, you’re gonna earn 150%. You can tell the SEC that’s what I said it would be.” Id.The plaintiff alleged that this video—and other social media posts making similar representations—did not include any cautionary language indicating that these statements were speculative, nor did it otherwise describe the funds’ risks. See id.Section 12(a)(2) of the Securities Act imposes liability on “any person who . . . offers or sells a security . . . by means of a prospectus or oral communication, which includes an untrue statement of a material fact or omits to state a material fact . . . to the person purchasing such security from him.” 15 USC § 77l(a)(2).The Supreme Court has held that “sell[ers]” of securities are not just people who pass title to those securities, but also anyone who “engages in solicitation,” meaning anyone who “solicits the purchase, motivated at least in part by a desire to serve his own financial interests or those of the securities owner.” Pinter v. Dahl, 486 US 622, 647 (1988). Courts regularly dismiss Section 12(a)(2) claims if a plaintiff fails to allege facts indicating a defendant was a “seller” under this definition.In Pino, the US District Court for the Central District of California dismissed the plaintiff’s claims for failure to plead facts establishing that the defendants were sufficiently “engaged in solicitation” to qualify as “sellers.” Pino, 2022 WL 17826876, at *3. Specifically, the District Court held that “the alleged solicitation consisted solely of statements made on social media highlighting the benefits of investing in the Funds,” and that there were no allegations that the defendants “dire

(emphasis added).30Macquarie, 2024 WL 1588706, at *5.31Id.32 Id.33Id. (quoting Basic Inc. v. Levinson, 485 U.S. 224, 239 n.17 (1988)).34Id. at *6.35Stratte-McClure, 776 F.3d at 101.36Id. (quoting Glazer v. Formica Corp., 964 F.2d 149, 157 (2d Cir. 1992)).37In re NVIDIA Corp. Sec. Litig., 768 F.3d 1046, 1054 (9th Cir. 2014); accord Oran v. Stafford, 226 F.3d 275, 288 (3d Cir. 2000) (Item 303 “does not automatically give rise to a material omission under Rule 10b-5”); Carvelli, 934 F.3d at 1331 (“On its face, Item 303 imposes a more sweeping disclosure obligation than Rule 10b-5, such that a violation of the former does not ipso facto indicate a violation of the latter.”).38In re NVIDIA, 768 F.3d at 1054 (quoting Matrixx Initiatives, 131 S Ct. at 1321-22).39 Reply Br. for Petitioners, No. 22-1165, at 5 (Aug. 28, 2023).40Stratte-McClure, 776 F.3d at 107-08.41Macquarie, 2022 WL 17815767, at *4 (citation omitted).42Macquarie, 2024 WL 1588706, at *5 n.2.43Id. at *5.44 15 U.S.C. § 77k(a).45 15 U.S.C. § 77l(a)(2).46E.g., Panther Partners, 681 F.3d at 120.47Macquarie, 2022 WL 17815767, at *2 (quoting SEC Interpretive Release, at *6).48Id. (quoting SEC Interpretive Release, at *6).49Id. at *3 (quoting SEC Interpretive Release, at *6).50Id. (citing Stratte-McClure, 776 F.3d at 102–03).51Id. at *5.52Id. at *5 n.2.53Lorenzo v. Sec. & Exch. Comm'n, 587 U.S. 71, 79, 81 (2019).54See, e.g., Plumber & Steamfitters Local 773 Pension Fund v. Danske Bank A/S, 11 F.4th 90, 105 (2d Cir. 2021) (“[U]nlike the better-known subsection (b), these subsections do not require the defendant to make a misstatement or omission; they require only deceptive conduct.”).55Lentell v. Merrill Lynch & Co., 396 F.3d 161, 177 (2d Cir. 2005); see also IBEW Local 595 Pension & Money Purchase Pension Plans v. ADT Corp., 660 Fed. App’x 850, 858 (11th Cir. 2016) (“A [Rule 10b-5(a) or (c)] claim is different and separate from a nondisclosure claim . . . . Misleading statements and omissions only create [Rule 10b-5(a) or (c)] liabilit

ments. The Future of Section 11 and Section 12 Cases Based on Direct ListingsThis opinion provides much-needed clarity for businesses seeking to go public and pursue a direct listing instead of the classic IPO, at least with respect to Section 11 liability. The Supreme Court was clear in reaffirming decades of precedent and in holding that a plaintiff must plead and prove his or her security was registered under a registration statement (i.e., traceable) in order for Section 11 liability to attach. Companies that go public through a direct listing may be able to forgo the risks associated with a potential Section 11 lawsuit. However, the Supreme Court's caveat with respect to Section 12(a)(2) may lead to lower courts allowing such cases based on direct listings to move forward. This could lead to a further circuit split as courts decide how to treat direct listings, which are still relatively new to the public offering sphere.Slack Techs., 2023 WL 3742580, at *5.Id.Id.Id. at 6 n.3.Id. 15 U.S.C. § 77l(a)(2).Id.

e issues and focused on the paucity of case law addressing Section 12 claims.The Court alluded to the possibility that it would “split the baby” and rule on the traceability issue with respect to Section 11, but remand on the Section 12(a)(2) issue.IntroductionThe U.S. Supreme Court will likely decide in the next month whether plaintiffs asserting claims under Sections 11 and 12(a)(2) of the Securities Act must show that they purchased shares registered under the registration statement that they claim to be misleading. Section 11 of the Securities Act provides that when any part of a registration statement contains a material misstatement or omission, “[a]ny person acquiring such security” shall have an express right of action. 15 U.S.C. § 77k(a). Section 12(a)(2) provides that “any person who … offers or sells a security … by means of a prospectus or oral communication” which contains a material misstatement or omission may be liable to “the person purchasing such security from him.” 15 U.S.C. § 77l(a)(2).It is unclear whether “such security” under Sections 11 and 12(a)(2) should be interpreted in the same way, a major point of contention during the Supreme Court’s oral argument. Courts have interpreted this phrase in Section 11 narrowly to mean that plaintiffs must show that their purchased shares were issued pursuant to the challenged registration statement. See Barnes v. Osofsky, 373 F.2d 269 (2d Cir. 1967).Recently, the Ninth Circuit interpreted the term broadly, holding that both registered and unregistered shares in a direct listing were sufficiently traceable to the company’s registration statement to sustain claims under Sections 11 and 12(a)(2). Pirani v. Slack Techs., Inc., 13 F.4th 940 (9th Cir. 2021). The case arose from Slack’s move to go public via a direct listing. Direct listings, first approved by the SEC in 2018, allow a company to “go public” outside of the traditional IPO process. The filing of a registration statement is still required for a direct listing, but bot

low, finding that it was error for the Ninth Circuit to assume without further analysis that Section 12 liability must be “consistent” with liability under Section 11. The Supreme Court could instruct that a separate analysis of Section 12 is required before coming to rest on the question of the scope of liability. This could include an assessment of whether the textual differences in Section 12 might lead to a different outcome. We will continue to monitor developments with this appeal and report on the Court’s ultimate decision when issued.Axon Enter., Inc. v. FTC, 215 L. Ed. 2d 151, 2023 U.S. LEXIS 1500 (U.S. Apr. 14, 2023).Id. 159, 2023 U.S. LEXIS 1500, at *9.Id. at 159, 162, 165, 2023 U.S. LEXIS 1500, at *10, *16-17, *24.Id. at 160, 2023 U.S. LEXIS 1500, at *12.Id. at 166, 2023 U.S. LEXIS 1400, at *27.Id.SEC v. Jarkesy et al., No. 22-859 (petition for cert. filed Mar. 8, 2023).No. 22-200 (petition for cert. granted by 143 S. Ct. 542 (U.S. Dec. 13, 2022).15 U.S.C. § 77k(a)(1)-(2); 15 U.S.C. § 77l(a)(2).Pirani v. Slack Techs., Inc., 13 F.4th 940, 949 (9th Cir. 2021).Download PDF of Advisory[View source.]

retive Release, at *6).Id. at *3 (quoting SEC Interpretive Release, at *6).Id. (citing Stratte-McClure, 776 F.3d at 102–03).Oran v. Stafford, 226 F.3d 275, 288 (3d Cir. 2000) (quoting Basic Inc. v. Levinson, 485 U.S. 224, 238 (1988)).Id.In re NVIDIA Corp. Sec. Litig., 768 F.3d 1046, 1054 (9th Cir. 2014) (quoting Basic, 485 U.S. at 239 n.17 and Matrixx Intiatives, Inc. v. Siracusano, 563 U.S. 27, 44–45 (2011)).Id. at 1056.Id. The Eleventh Circuit has expressed its agreement with both the Third and Ninth Circuits because “[o]n its face, Item 303 imposes a more sweeping disclosure obligation than Rule 10b-5, such that a violation of the former does not ipso facto indicate a violation of the latter.” Carvelli v. Ocwen Fin. Corp., 934 F.3d 1307, 1331 (11th Cir. 2019); see also Mun. Employees’ Ret. Sys. of Michigan v. Pier 1 Imports, Inc., 935 F.3d 424, 436 (5th Cir. 2019) (“We have never held that Item 303 creates a duty to disclose under the Securities Exchange Act[.]”). 15 U.S.C. §§ 77k, 77l(a)(2). Section 11 imposes strict liability on issuers and signatories, and negligence liability on underwriters, “[i]n case any part of the registration statement, when such part became effective, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading.” 15 U.S.C. § 77k(a). Section 12(a)(2) imposes liability under similar circumstances for misstatements or omissions in a prospectus. See id. § 77l(a)(2).See Panther Partners, 681 F.3d at 120.NVIDIA, 768 F.3d at 1055.Id. at 1055–56 (quoting Panther Partners, 681 F.3d at 120).NVIDIA, 768 F.3d at 1056.Stratte-McClure, 776 F.3d at 102. 964 F.2d 149, 157 (2d Cir. 1992). 910 F.2d 10, 12 (1st Cir. 1990).Glazer, 964 F.2d at 157 (quoting Backman, 910 F.2d at 12 (quoting Roeder v. Alpha Industries, Inc., 814 F.2d 22, 27 (1st Cir. 1987))).See, e.g., In re Synchrony Fin. Sec. Litig., 988 F.3d 157, 167 (2d Cir. 2021) (citing Stratte-McClur

improve these Know-Your-Customer systems, and consent to the installation of a monitor. Although the Dapper Labs court ruled in favor of the putative investor class at this early stage, plaintiffs will now have to demonstrate all the elements of their claim, including meeting the requirements to certify their putative class.We expect the S.E.C., other regulators, and the courts to continue to develop the body of guidance on how federal and state regulations apply to digital assets. As the Dapper Labs court reminded issuers:“[E]mbrac[ing] a new technology – NFTs – does not change the underlying legal analysis.” For prospective investors, NFTs and other digital assets will likely remain a class that requires significant due diligence.Friel v. Dapper Labs, Inc., Dkt. No. 1:21-cv-05837-VM (S.D.N.Y.) (the “Action”).15 U.S.C. § 77e. The Action also names Roham Gharegozlou, Dapper Labs’ Chief Executive Officer, as a defendant, asserting control person liability pursuant to Section 12(a)(1). 15 U.S.C. §77l. Friel, Dkt. No. 1:21-cv-05837-VM, slip op. at 20.Framework for “Investment Contract” Analysis of Digital Assets, Secs. & Exch’g Comm’n, Apr. 3, 2019, available at https://www.sec.gov/corpfin/framework-investment-contract-analysis-digital-assets.328 U.S. 293 at 298-99.See n.4 supra.Friel, slip op. at 21-22.Id. at 36-37.In the Matter of Kimberly Kardashian, Admin. Proc. File No. 3-21197 (S.E.C. Oct. 3, 2022), available at https://www.sec.gov/litigation/admin/2022/33-11116.pdf.In the Matter of Paul Anthony Pierce, Admin. Proc. File No. 3-21305 (S.E.C. Feb. 17, 2023), available at https://www.sec.gov/litigation/admin/2023/33-11157.pdf.https://www.coinbase.com/price/ethereummax.See Paul Grewal, The SEC Has Told Us It Wants to Sue Us Over Lend. We Don’t Know Why., Coinbase, Sept. 7, 2021, available athttps://www.coinbase.com/blog/the-sec-has-told-us-it-wants-to-sue-us-over-lend-we-have-no-idea-why.See In the Matter of Coinbase, Inc., N.Y.S. Dept. of Fin. Svcs., Consent Order, available ath

edited [or] non-accredited…you’re gonna walk away with a 15% annualized return. If I’m in that deal for 10 years, you’re gonna earn 150%. You can tell the SEC that’s what I said it would be.”Additionally, Cardone and Cardone Capital posted on Instagram about internal rates of return, distributions, and long-term appreciation. For example, on February 5, 2019, on Cardone’s personal Instagram account, he asks, “Want to double your money[?]” and then states an investor could receive $480,000 in cash flow after investing $1,000,000, achieve “north of 15% returns after fees,” and obtain a “118% return amounting to 19.6% per year.”The District Court dismissed, holding that Cardone and Cardone Capital did not qualify as statutory sellers under Sec. 12(a)(2) of the Securities Act. Sec 12(a)(2) imposes liability on “any person who…offers or sells a security…by means of a prospectus or oral communication, which includes an untrue statement of a material fact or omits to state a material fact….”(15 U.S.C. § 77l(a)(2)). The District Court held that Cardone and Cardone Capital did not meet the definition of one who “offers or sells a security” as the alleged solicitations consisted solely of statements made on social media and neither defendant directly nor actively solicited Pino’s investment.The Ninth Circuit reversed and held for the first time that mass, online promotions qualify as offers under Sec. 12(a)(2) thus making Cardone and Cardone Capital statutory sellers. The Court reasoned the Securities Act contains broad language authorizing the purchaser of a security to file an action against any person who offers or sells a security by means of a prospectus or oral communication that misleads or omits material facts. Additionally, the definitions of "offer" and "prospectus" were broad and originally included communications through radio and television urging Congress, when passing the Securities Act, to contemplate that “broadly disseminated, mass communications with potentially large audiences

In Pino v. Cardone Capital, LLC, 2022 U.S. App. LEXIS 35278 (9th Cir. Dec. 21, 2022), the United States Court of Appeals for the Ninth Circuit (Lynn, J.) joined with the Eleventh Circuit in holding that a person may qualify as a statutory “seller” within the meaning of Section 12(a)(2) of the Securities Act of 1933 (the “Act”), 15 U.S.C. § 77l(a)(2), by promoting the sale of a security in mass communications made on social media.Online videos and social media posts may trigger liability because Section 12(a)(2) does not require that a solicitation be directed or targeted to a particular investor.The Ninth Circuit’s holding highlights the risk that investment companies and their advisers face if they promote or otherwise discuss the merits of securities offerings online.Defendant Grant Cardone founded Cardone Capital, LLC, which managed Cardone Equity Fund V, LLC and Cardone Equity Fund VI, LLC (collectively, the “Funds”). The Funds invested in real estate assets throughout the United States by raising millions of dollars in crowdfunding using social media.Plaintiff Luis Pino invested in the Funds and filed a class action in the United States District Court for the Central District of California against Cardone, Cardone Capital, and the Funds asserting that they violated Section 12(a)(2) of the Act by soliciting investment in the