Third Party Intermediaries and the Distribution of Unregistered Securities under Sections 5(a) and (c).

Third parties or intermediaries not otherwise directly selling securities they own may find themselves the target of the Securities and Exchange Commission for violations of Sections 5(a) and (c) of the Securities Act, namely the distribution of unregistered securities.  This is particularly troublesome because violations thereof are subject to a strict liability standard, that is, intent is not element requisite to the claim.

SEC v. Murphy [1] stood for the proposition that a participant must be "both a 'necessary participant' and 'substantial factor' in the sales transaction." But as a result of a 1988 the case, Pinter v. Dahl [2] the SEC took the position that Murphy’s substantial factor analysis had been overruled by a “but for” or proximate cause analysis.  As a result, in many instances, the SEC applied this “but for” standard to intermediaries or participants in assessing whether or not, for purposes of Section 5, they might be deemed to be “sellers”.

But in 2011, the Ninth Circuit clarified the matter distinguishing Pinter from Murphy.  As a result, an individual’s facing allegations of Section 5 violations are subject to a calculus measuring whether or not they were in fact a substantial factor in the transaction.  This is almost always a question of fact for the fact finder (jury or judge) and is not typically matter disposed of by summary judgment.

The following is a brief summary of the import of SEC v. Bagley in the context of Section 5 and the relevant standards for imposing liability on a third party intermediary or participant.

Setting Aside a Default in Federal Court

Federal Rule of Civil Procedure Rule 55 governs defaults and default judgments.  It provides in pertinent part the following:

(a) Entering a Default. When a party against whom a judgment for affirmative relief is sought has failed to plead or otherwise defend, and that failure is shown by affidavit or otherwise, the clerk must enter the party's default.

(b) Entering a Default Judgment.

(1) By the Clerk. If the plaintiff's claim is for a sum certain or a sum that can be made certain by computation, the clerk—on the plaintiff's request, with an affidavit showing the amount due—must enter judgment for that amount and costs against a defendant who has been defaulted for not appearing and who is neither a minor nor an incompetent person.

(2) By the Court. In all other cases, the party must apply to the court for a default judgment. A default judgment may be entered against a minor or incompetent person only if represented by a general guardian, conservator, or other like fiduciary who has appeared. If the party against whom a default judgment is sought has appeared personally or by a representative, that party or its representative must be served with written notice of the application at least 7 days before the hearing. The court may conduct hearings or make referrals—preserving any federal statutory right to a jury trial—when, to enter or effectuate judgment, it needs to:

(A) conduct an accounting;

(B) determine the amount of damages;

(C) establish the truth of any allegation by evidence; or

(D) investigate any other matter.

(c) Setting Aside a Default or a Default Judgment. The court may set aside an entry of default for good cause, and it may set aside a default judgment under Rule 60(b).