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The Unreasonable Burden of Proving the Reasonable Care Defense Under the Uniform Securities Act

Mark B. Barnes and Matthew R. St. Louis
The Business Lawyer
Vol. 63, No. 4 (August 2008), pp. 1223-1241
Published by: American Bar Association
Stable URL: http://www.jstor.org/stable/40688551
Page Count: 19
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The Unreasonable Burden of Proving the Reasonable Care Defense Under the Uniform Securities Act
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Abstract

Under the Uniform Secunties Act (a version of which has been enacted by most states), an entity that sells secunties in violation of the Act is potentially liable to investors under the Act's civil remedy provisions. Directors, officers, partners, controlling persons, and others associated with the entity at the time of the sale are also potentially liable, jointly and severally with each other and the entity, solely on account of their affiliation with the entity. While the Act entitles these "denvative liability" defendants to assert an affirmative defense of reasonable care, the affirmative defense is narrowly drafted, and courts have interpreted the defense stnctly. This Article examines the decisions in which courts have interpreted the "reasonable care" defense, in particular the November 2007 opinion of the Indiana Supreme Court in Lean v. Reed, and ends by recommending secunties law compliance policies and procedures that entities selling secunties in Uniform Secunties Act states might consider adopting to assist their associated and affiliated persons in managing the nsk of potential personal liability.

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