## Facts

- Dignity Partners, Inc. operated a viatical-settlements business, purchasing rights to life-insurance proceeds from people with AIDS and assuming responsibility for premium payments.
- Dignity filed a registration statement with the SEC for an IPO of approximately 2.7 million shares of common stock.
- After the offering, information became public that advances in AIDS treatment were extending patients’ life expectancy, increasing the duration Dignity had to pay premiums and contributing to significant losses and a stock decline.
- The plaintiffs purchased Dignity common stock on the open market more than 25 days after the IPO, but before the adverse information and resulting losses became public.
- Plaintiffs alleged the registration statement was materially misleading because Dignity knew or should have known about the longer life expectancy trend and failed to disclose its impact on the business.
- The district court dismissed the plaintiffs’ Securities Act § 11 claim for lack of standing, reasoning § 11 relief was limited to IPO purchasers or those purchasing within 25 days after the offering.
- A putative class member who purchased within 25 days sought to intervene as a new class representative; the district court denied intervention as time-barred.

## Issues

1. Whether § 11 of the Securities Act permits aftermarket purchasers who bought more than 25 days after an IPO to sue for misstatements or omissions in the registration statement if their shares are traceable to that registration statement.
2. Whether a judicially imposed 25-day cutoff limits § 11 standing.

## Decision

- The Ninth Circuit reversed the dismissal of the § 11 claim and remanded for further proceedings.
- The court held that § 11 standing is not limited to IPO purchasers or those purchasing within 25 days after the offering.
- Aftermarket purchasers may sue under § 11 if they acquired securities traceable to the registration statement alleged to be defective.
- Because the named plaintiffs had § 11 standing, the court did not decide issues related to the denied intervention or any statute-of-limitations question tied to that intervention.

## Legal Principles

- Section 11’s text granting a cause of action to “any person acquiring such security” extends beyond initial-distribution purchasers; the controlling limitation is whether the purchased shares are traceable to the challenged registration statement.
- A prospectus-delivery rule applicable to aftermarket transactions does not create a standing cutoff for § 11 liability based on a defective registration statement.
- Supreme Court authority interpreting different statutory language in § 12 does not narrow § 11 standing where § 11’s text and structure differ.
- The remedial purpose of § 11 supports allowing claims by purchasers harmed by materially misleading registration statements, including eligible aftermarket purchasers.

## Conclusion

The Ninth Circuit held that § 11 standing turns on traceability to the allegedly misleading registration statement, not on whether a plaintiff purchased in the IPO or within 25 days thereafter, and it reinstated the aftermarket purchasers’ § 11 claim for further proceedings.


Hertzberg v. Dignity Partners, Inc., 191 F.3d 1076 (9th Cir. 1999)