## Facts

- Investors bought limited partnership interests in a motel venture marketed primarily as a tax shelter promising deductible losses.
- The investment failed, and investors sued the organizers/general partners for federal securities fraud.
- The claims alleged violations of § 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, and § 12(2) of the Securities Act of 1933.
- Before trial, the investors tendered their partnership interests and sought rescissionary relief.
- A jury found the defendants liable for fraud.
- The district court awarded rescission under § 12(2): return of consideration paid plus prejudgment interest, without reducing the award by investors’ prior federal tax benefits from partnership losses.
- The court of appeals affirmed liability but required the rescissionary award to be reduced by the value of tax benefits, reasoning that § 28(a) of the 1934 Act limits recovery to “actual damages.”
- The Supreme Court granted review to decide whether a tax-benefit offset is required.

## Issues

1. Whether § 28(a) of the Securities Exchange Act of 1934 requires rescissionary or rescission-based recovery under § 12(2) of the Securities Act of 1933 or § 10(b) of the 1934 Act to be reduced by tax benefits received from a tax-shelter investment.
2. Whether “actual damages” in § 28(a) mandates netting out investors’ tax advantages when measuring recovery for securities fraud in tax-shelter schemes.

## Decision

- The Supreme Court reversed the court of appeals (8–1).
- Section 28(a) does not require reducing rescissionary or rescission-based recovery under § 12(2) or § 10(b) by prior tax benefits.
- The case was remanded for proceedings consistent with the Court’s rejection of the tax-benefit offset.

## Legal Principles

- Section 12(2) provides an express rescissionary remedy—return of consideration paid plus interest, minus “income received”—that is not displaced by § 28(a)’s general limitation language.
- Section 28(a) functions as a cap on duplicative or excessive recovery; it does not supply a damages measure or override a statute’s specified remedial formula absent clear direction.
- Tax benefits from a fraudulent tax-shelter investment are not treated as “income received” that must be subtracted from § 12(2) rescissionary recovery.
- Offsetting tax benefits would force courts into uncertain, collateral tax determinations (including valuation and recapture risks) not required by the securities laws’ remedial scheme.
- Interpreting § 28(a) to mandate a tax-benefit offset would weaken the deterrent and enforcement objectives of the federal securities laws by reducing the consequences of fraud.

## Conclusion

The Court held that investors who obtain rescissionary or rescission-based relief for securities fraud are not required to reduce their recovery by prior tax benefits associated with the investment; § 28(a)’s “actual damages” limitation does not impose a tax-benefit offset on the remedies provided under § 12(2) or § 10(b).


Randall v. Loftsgaarden, 478 U.S. 647 (1986)