Opinion ID: 1248085
Heading Depth: 1
Heading Rank: 8

Heading: interpretation of the statute in general

Text: Section 62-309(2) of the Code was taken almost verbatim from Section 12(2) of the Securities Act of 1933, 15 U.S.C.A. Section 771(2). See Official Code Comment to Section 410 of the Uniform Securities Act [Section 62-309]. Accordingly, cases interpreting Section 12(2) of the Securities Act of 1933, while not binding authority on this Court, are looked to for guidance in interpreting the corresponding South Carolina Code provision with which we are dealing. The elements of recovery under Section 12(2) were aptly summarized in the recent case of Aronson v. TPO, Inc. , 410 F. Supp. 1375 [S.D.N.Y., 1976] CCH Fed. Sec. L. Rep. , Par. 95, 486, as follows: To recover under Section 12(2) plaintiffs must show that defendants misstated or omitted to state certain material facts, that such misstatements or omissions rendered the statements made misleading, and that plaintiffs did not know the truth. Hill York Corp. v. American International Franchises, Inc. , 448 F. (2d) 680, 696 & n. 25 (5th Cir.1971); Johns Hopkins University v. Hutton , 422 F. (2d) 1124, 1128-29 (4th Cir.1970), cert. denied , 416 U.S. 916, 94 S.Ct. 1622, 40 L.Ed. (2d) 118 (1974); 15 U.S.C. Section 771. A material omission of fact is a fact about which an average prudent investor ought reasonably to be informed before purchasing the security. SEC v. Shapiro , 494 F. (2d) 1301, 1305 (2d Cir.1974); Hill York Corp., supra ; Demarco v. Edens , 390 F. (2d) 836, 840 (2d) Cir.1968). Section 12(2) does not require that plaintiffs show reliance, causation or that the sale would not have occurred absent the omission. Hill York Corp., supra ; Demarco , 390 F. (2d) at 841. Plaintiffs' sophistication in the securities industry and the availability of the information to plaintiffs through sources other than defendants are immaterial to defendants' obligations under this section. See, e.g., Hill York Corp., supra . Further, the [plaintiffs] do not have to prove that they could not have discovered the falsity upon reasonable investigation. Gilbert v. Nixon , 429 F. (2d) 348, 356 (10 Cir.1970). It appears clear that a seller may violate Section 12(2) by mere negligent representations or omissions, 3 L. Loss, Securities Regulation , ch. 11 C, p. 1705 (1961). Moreover, the entire burden of proof with regard to the existence or nonexistence of seller negligence, recklessness or intent to defraud has been shifted by Section 12(2) to the seller. According to the United States Supreme Court in Wilko v. Swan , 346 U.S. 427, 431, 74 S.Ct. 182, 184, 98 L.Ed. 168, 173 (1953): [Section] 12(2) created a special right to recover from misrepresentation which differs substantially from the common-law action in that the seller is made to assume the burden of proving lack of scienter . See also Woodward v. Wright , 266 F. (2d) 108 (10th Cir.1959). The Federal Courts have imposed Section 12(2) liability in corporate acquisitions where the sellers have engaged in misrepresentations or omissions with regard to corporate earnings, capital requirements, accounting methods and financial statements. Aronson v. TPO, Inc., supra ; The Value Line Fund, Inc. v. Marcus (D.C.N.Y. 1965) '64-'66 CCH Dec. Par. 91,523; Bowman & Bourdon, Inc. v. Rohr , 296 F. Supp. 847 (D. Mass. 1969), affd. 417 F. (2d) 780 (1st Cir.1969) and cases cited therein.