Due Diligence Defense
Section 11 of the Securities Act imposes liability for underwriters, directors and others involved with a public securities offering. The statute also provides a due diligence defense for everyone, except the issuer. FTI Consulting professionals are uniquely qualified to strengthen the due diligence defense of those involved with an offering through consultation prior to the deal closing. Our consultants and testifying experts can also assist, after-the-fact, in establishing that adequate due diligence was performed prior to the offering. FTI’s professionals include former officials with the Securities and Exchange Commission (SEC), The Financial Accounting Standards Board (FASB), the Public Company Accounting Oversight Board (PCAOB), and former partners and managers with audit firms including the Big Four and their predecessor firms.
Due Diligence Defense Overview
Section 11 of the Securities Act imposes liability to parties involved in a securities offering if the registration statement contains a materially false statement or material omission. The potential defendants under a Section 11 claim include underwriters, directors, professionals that certified any part of the registration statement (e.g., accountants) and anyone that signs the registration statement. Section 11, however, also gives defendants (other than the issuer) a due diligence defense.
To effectively use the due diligence defense, a Section 11 defendant carries the burden of proof to demonstrate that he or she, after reasonable investigation, believed that the statements in the registration statement were true and free of material omissions. Without a due diligence defense, Section 11 claims can be difficult to defend since plaintiffs are not required to show scienter or that the misstatement or omission caused the plaintiff’s loss.
Because of FTI’s seasoned professionals with vast experience in forensic accounting, accounting standards, auditing, disclosure requirements and internal control over financial reporting (ICFR), FTI Consulting is the go-to resource when performing due diligence and establishing a due diligence defense for underwriters and others subject to Section 11 liability.