Contractual Shifting of Defense Costs In Private Offering Securities Litigation

Federal securities regulation exists primarily to reduce fraud in the sale of securities through disclosure of all material facts in a manner least disruptive to capital formation.' This purpose is implemented through the disclosure,2 registration,3 and antifraud4 provisions of the Securities Act of 1933,6 the Securities and Exchange Act of 1934,8 and the rules and regulations promulgated by the Securities and Exchange Commission ("SEC"). To enforce the 1933 and 1934 Acts, Congress and the judiciary have created express7 and implied8 civil causes of action to penalize those who sell securities with materially false or misleading statements or omissions. Congress, however, also recognized that varying degrees of investor knowledge existed' and that the costs to issuers of compliance with the