Omissions as a Separate Antifraud Violation

How Does an Omission Trigger Antifraud Liability?

• Securities Act's antifraud provision: makes it unlawful, in the offer or sale of a security, to employ a device or scheme to defraud, to obtain money or property through an untrue statement of a material fact or an omission of a material fact necessary to keep the statements made from being misleading, or to engage in a transaction or practice that operates as a fraud on the purchaser.
• General antifraud rule under the Securities Exchange Act: the parallel antifraud rule for conduct in connection with the purchase or sale of any security. It bars the same core conduct: a device or scheme to defraud, an untrue statement or omission of a material fact that makes other statements misleading, and any act or practice that operates as a fraud or deceit.

Exam Tip: Gotchas

• A representative does not need to intend fraud for an omission to violate the fair-and-balanced content standard. But once a material omission makes a product description misleading, that same gap can separately expose the firm and the representative to antifraud liability.

Who Does the Securities Act's Antifraud Provision Protect?

The purchaser. That provision reaches fraud in the offer or sale of a security, and its fraud-on-the-purchaser clause is what carries protection to the defrauded buyer.

What Should You Check on Exam Day?

• A material omission can violate the content standard and trigger antifraud liability at the same time; these are two separate exposures from one gap.
• Intent to defraud is not required for the content-standard violation.
• Match a defrauded buyer to the Securities Act's antifraud provision, which protects the purchaser through its fraud-on-the-purchaser clause.