Opinion ID: 663518
Heading Depth: 2
Heading Rank: 1

Heading: Count I--Section 12(2)

Text: 38 1. Section 12(2) of the 1933 Act provides a remedy to a purchaser of a security made on the basis of an untrue statement of a material fact contained in a prospectus. The remedy is to recover the consideration paid by him. The only defense to an untrue statement of a material fact is lack of knowledge and the exercise of reasonable care in making the statement. The burden of proof is on the seller. Under the 1933 Act, projections which are neither reasonable nor reasonably justified when made constitute misrepresentations of material facts. Acme Propane, Inc. v. Tenexco, 844 F.2d 1317, 1324 (7th Cir.1988); Weilgos v. Commonwealth Edison Co., 892 F.2d 509, 513 (7th Cir.1989). Defendants concede that the limited partnership interest purchased by Weinberg is a security and the letter of December 10, 1987 (plft. ex. 1) is a prospectus. Defendants argue that the evidence showed that they did exercise reasonable care in putting together the projections but the court has found that they did not do so. (FF No. 28) It is also clear from the emphasis defendants placed on the projections in attempting to demonstrate the short period of time needed to recoup the investment that the projections were very material to the sales presentation. The projections were wrong and defendants were negligent in their preparation and that is all that is needed to make the defendants liable under Section 12(2). 39 2. Actions under Section 12(2) must be brought within three years from the date of purchase, or one year from discovery of facts giving rise to the claim, whichever is the shorter period. Short v. Belleville Shoe, 908 F.2d 1385, 1392 (7th Cir.1990). Defendants claim that the evidence showed that Weinberg and Kramer were advised about the HUD projections in early 1988 and, thus, more than one year after discovery of the facts giving rise to the claim. The evidence was in dispute whether the HUD application was shown to either Weinberg or Kramer but defendants contend that they took great pains to assure plaintiff (and the court) that the HUD application figures were inaccurate and used only to placate HUD. Defendants cannot have it both ways. If, as David assured us, the HUD figures were wrong, rather than the December 10, 1987 figures, then Weinberg would not have been on notice that these December 10, 1987 figures were wrong. It was not until February 2, 1990 when he was advised of the revised projections that Weinberg was actually put on notice that the projections were incorrect. (FF No. 21) Thus, the law suit which was filed within a year, August 2, 1990, was timely. 40 3. The court finds that defendants are liable under Section 12(2) for the consideration paid for the limited partnership share, with prejudgment interest upon the tender of the partnership share.