What is liability under Section 17 of the 33 Act?

Section 17 of the 33 Act is an anti-fraud provision applicable to the initial sale or issuance of securities. It makes it illegal to employ any device, scheme, or artifice to defraud obtain money or property engage in any transaction, practice, or course of business which operates or would operated as a fraud or deceit upon the purchaser. It is primarily a government enforcement provision and courts generally do not allow a private cause of action by purchasers against the issuer under this provision.

Note: Section 17 is very similar in nature to Rule 10(b)(5) of the Securities Exchange Act of 1934, which is a common fraud prevention provision. The primary difference is Section 17 does not require the government to demonstrate a specific mental intent of the issuer to defraud purchasers of securities.