Section 11 of the Securities Act of 1933: the Disproportionate Liability Imputed to Accountants
Candida Patricio José
Congress enacted the Securities Act of 1933 to regain investor confidence in the stock market by requiring that issuers provide certain disclosures to the investing public. Specifically, under section 11 of the Act, an investor may sue every person who signed the registration statement. Issuers and underwriters are properly within the scope of section 11 liability because of their close connection with the offering and distribution of securities.
Accountants are also liable under the Securities Act. This note posits that accountants’ roles are too attenuated with respect to their limited involvement to be subject to section 11 liability. The resulting increase in litigation against accounting firms has caused a backlash by the firms and exploitation of the accountants. Because of the limited and attenuated role of the accountant in the offering of securities, attaching liability to the accountant seems disproportionate. Perhaps section 11 should be more narrowly tailored to exclude causes of action against those who merely assist in the registration process.