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  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  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.
1. Sections 5(a) and (c) of the Securities Act , make it unlawful to offer or sell a security through interstate commerce if a registration statement has not been filed as to that security, unless the transaction qualifies for an exemption from registration. 
2. Section 5(a)(1) "broadly prohibits sales of securities irrespective of the character of the person making them." SEC v. Chinese Consol. Benevolent Ass'n, 120 F.2d 738, 741 (2d Cir. 1941).
3. To establish a prima facie case for violation of Section 5, the SEC must show that :
a) no registration statement was in effect as to the securities;
b) the defendant directly or indirectly sold or offered to sell securities; and
c) the sale or offer was made through interstate commerce.
4. Once the SEC introduces evidence that a defendant has violated the registration provisions, the defendant then has the burden of proof in showing entitlement to an exemption.  Section 5 is a strict liability statute.
7. Good faith reliance on counsel may not preclude liability under the statute. Indeed, "neither a good faith belief that the offers or sales in question were legal, nor reliance on the advice of counsel, provides a complete defense to a charge of violating Section 5 of the Securities Act.
8. Because Section 5 imposes strict liability for violations of its registration requirement, it is particularly important that the necessary participant and substantial factor test be carefully applied to each case so as not to subject defendants with a de minimis or insubstantial role in a securities scheme to strict liability.
9. Although Section 5 provides that it is unlawful for any person to sell or offer to sell an unregistered security, 15 U.S.C. § 77e(a), (c), liability under Section 5 is not limited to the person or entity who ultimately passes title to the security. See Murphy, 626 F.2d at 649.
10. Instead, courts have established the concept of 'participant' liability to bring within the confines of § 5 persons other than sellers who are responsible for the distribution of unregistered securities." Id.
11. With respect to Section 5, a defendant's role in the transaction must be a significant one before liability will attach. Id. at 648.
12. Defendants play a significant role when they are "both a 'necessary participant' and 'substantial factor' in the sales transaction." Phan, 500 F.3d at 906 (quoting Murphy, 626 F.2d at 648, 652).
13. The substantial factor test requires more than a finding of "but for" causation. Prior to the issuance of a security, numerous persons perform mechanical acts without which there could be no sale. For example, a printer may prepare key documents or a bank may advance cash to a customer upon the customer's presentation of an instrument and then pass the instrument to another person. Both would satisfy a "but for" causation test, but these acts nonetheless do not render the defendants sellers.
14. Before a person's acts can be considered the proximate cause of a sale, said acts must also be a substantial factor in bringing about the transaction. Murphy, 626 F.2d at 650 (citations omitted); see also SEC v.Seaboard Corp., 677 F.2d 1289, 1294 (9th Cir. 1982).
15. The proximate cause analysis required by Murphy almost always results in a question of fact for the fact finder."
16. Prior to SEC v. Bagley, the SEC had successfully argued that Pinter v. Dahl, (486 U.S. 622, 108 S. Ct. 2063, 100 L. Ed. 2d 658 (1988)) applied. In Pinter, the Supreme Court overruled the use of the "substantial factor" test for purposes of imposing liability under Section 12 of the Securities Act. 486 U.S. at 654.
17. This is because Section 12 provides that "any person who—(1) offers or sells a security in violation of [Section 5] . . . shall be liable . . . to the person purchasing such security from him." 15 U.S.C. § 77l(a). The Pinter court explained that "[t]he 'purchase from' requirement of § 12 focuses on the defendant's relationship with the plaintiff-purchaser.
18. The substantial-factor test, on the other hand, focuses on the defendant's degree of involvement in the securities transaction and its surrounding circumstances." Pinter, 486 U.S. at 651.
19. Section 5 does not contain a similar "purchase from" requirement, therefore Pinter does not overrule use of the substantial factor test for purposes of imposing Section 5 liability. See Phan, 500 F.3d at 906 n.13; see also Geiger v. SEC, 363 F.3d 481, 487-88, 361 U.S. App. D.C. 45 (D.C. Cir. 2004).
THE APPLICATION OF THE NECESSARY PARTICIPANT AND SUBSTANTIAL FACTOR TEST
20. A participant's title, standing alone, cannot determine liability under Section 5, because the mere fact that a defendant is labeled as an issuer, a broker, a transfer agent, a CEO, a purchaser, or an attorney, does not adequately explain what role the defendant actually played in the scheme at issue.
21. Instead, whether a defendant is a substantial factor in the distribution of unregistered securities is a question of fact requiring a case-by-case analysis of the nature of the securities scheme and the defendant's participation in it. See Anderson, 774 F.2d at 930.
22. This does not mean that summary judgment will never be appropriate.
 626 F.2d 633, 641 (9th Cir. 1980)  (486 U.S. 622, 108 S. Ct. 2063, 100 L. Ed. 2d 658 (1988)).  15 U.S.C. § 77e(a), (c). SEC v. Platforms Wireless Int'l Corp., 617 F.3d 1072, 1085 (9th Cir. 2010)  See SEC v. Phan, 500 F.3d 895, 902 (9th Cir. 2007); see also SEC v. Calvo, 378 F.3d 1211, 1214 (11th Cir. 2004) (per curiam). SEC v. Murphy, 626 F.2d 633, 641 (9th Cir. 1980) (citing SEC v. Ralston Purina Co., 346 U.S. 119, 126, 73 S. Ct. 981, 97 L. Ed. 1494 (1953)). Phan, 500 F.3d at 905-06. Calvo, 378 F.3d at 1215; SEC v. Holschuh, 694 F.2d 130, 137 n.10 (7th Cir. 1982); Swenson v. Engelstad, 626 F.2d 421, 424 (5th Cir. 1980). See Kane v. SEC, 842 F.2d 194, 199 (8th Cir. 1988) (holding that Section 5 liability "extends to those persons who are uniquely positioned to ask relevant questions, acquire material information, or disclose their findings"). SEC v. Friendly Power Co., 49 F. Supp. 2d 1363, 1368 (S.D. Fla. 1999) (citing Holschuh, 694 F.2d at 137). Anderson v. Aurotek, 774 F.2d 927, 930 (9th Cir. 1985)  For example, in Murphy we affirmed the district court's grant of summary judgment in the SEC's favor regarding defendant's Section 5 liability because Murphy participated heavily in the offerings He devised the corporate financing scheme for [the issuer] . . . . He prepared and reviewed offering memoranda; he met personally with broker-dealers, investors and their representatives; and he spoke at broker-dealer sales seminars. There can be no gainsaying the importance of these acts: Murphy's extensive role in facilitating the transactions clearly was a substantial factor in the sales of unregistered securities. Murphy, 626 F.2d at 638, 652. Similarly, in Phan we affirmed summary judgment holding the defendant liable under Section 5 where the defendant chose the date to call in the investor's [**26] $1.25 million obligation to the issuer, directed the investor to sell the shares in order to repay her obligation, provided the investor with a buyer, directed the issuer's lawyer to draft a contract for the stock sale, and instructed the investor where to send the proceeds. 500 F.3d at 906. Because of those facts we concluded that Phan "was both a 'necessary participant' and a 'substantial factor in' Wu's resale." Id.; see also Calvo, 378 F.3d at 1215 ("[T]he undisputed material facts amply support the district court's determination that, as a matter of law, Calvo illegally sold unregistered securities" where "Calvo negotiated and signed the contract with [the issuer] SOE pursuant to which [the brokerage] received the unregistered shares as compensation; he extended that contract on behalf of [the brokerage]; he signed the documents that opened the . . . brokerage account into which all of the unregistered SOE shares were deposited; he signed stock transfer authorization and stock powers for sales or transfers of stock out of [the] brokerage account; and he received proceeds—albeit through [the brokerage]—from the sale of SOE shares. Clearly, Calvo was a necessary participant and [**27] a substantial factor in the illegal sale of unregistered SOE stock.").