by Graham Ellis*


Sec­tion 11 of the Secu­ri­ties Act impos­es lia­bil­i­ty on five groups, the fifth of which is under­writ­ers, for dam­age caused by untrue or mis­lead­ing infor­ma­tion in the Resale Reg­is­tra­tion State­ment of a secu­ri­ties trans­ac­tion. In a typ­i­cal ini­tial pub­lic offer­ing, under­writ­ers pur­chase secu­ri­ties from the issu­ing com­pa­ny and then resell those secu­ri­ties to the invest­ing pub­lic at a high­er price, pock­et­ing the dif­fer­ence for them­selves. Addi­tion­al­ly, under­writ­ers usu­al­ly engage in a road­show to build a book of investor interest.

Schol­ars have elab­o­rat­ed a jus­ti­fi­ca­tion for under­writer lia­bil­i­ty with­in the Secu­ri­ties Act, explain­ing that lia­bil­i­ty is nec­es­sary because such actors are gate­keep­ers. By adding cred­i­bil­i­ty to the issu­ing com­pa­ny and estab­lish­ing an impor­tant con­nec­tion between the com­pa­ny and the invest­ing pub­lic, the under­writer is respon­si­ble for the trust­wor­thi­ness of the issu­ing com­pa­ny and the transaction’s rep­re­sen­ta­tions to the pub­lic.1 These banks must be incen­tivized to exer­cise care in their role as inter­me­di­aries.2

The statu­to­ry def­i­n­i­tion of “under­writer” includes three cat­e­gories: buy­ers, sell­ers and offer­ors, and par­tic­i­pants.3 Debates over the mean­ing of “par­tic­i­pant” with­in this def­i­n­i­tion have cir­cu­lat­ed through­out the courts. How­ev­er, courts may face increased pres­sure to uni­fy their approach to this ques­tion as a result of the emer­gence of direct listings.

Direct list­ings are an alter­na­tive pub­lic offer­ing approach. In a direct list­ing, share­hold­ers sell exist­ing shares to the pub­lic upon list­ing on the New York Stock Exchange. There is no issuance of new shares as there is in an ini­tial pub­lic offer­ing. Because there are no stocks to pur­chase and then resell, direct list­ings do not typ­i­cal­ly involve a tra­di­tion­al under­writer. Instead, invest­ment banks are typ­i­cal­ly brought in to act as “finan­cial advi­sors” for the issu­ing com­pa­ny. Giv­en the rel­a­tive­ly nov­el nature of these trans­ac­tions and their ris­ing fre­quen­cy,4 the role of these “finan­cial advi­sors” is large­ly unde­fined. But in promi­nent direct list­ings such as Spotify’s, such finan­cial advi­sors often assist with the reg­is­tra­tion and list­ing of the trans­ac­tion, the draft­ing of legal forms, and the cre­ation of pub­lic com­mu­ni­ca­tions and investor pre­sen­ta­tions.5

As a result of this new form of secu­ri­ties dis­tri­b­u­tion, the debate regard­ing the scope of statu­to­ry under­writer lia­bil­i­ty has reignit­ed. The courts have not yet addressed whether finan­cial advi­sors in a direct list­ing should be liable as statu­to­ry under­writ­ers.  Sev­er­al schol­ars argue courts should hold finan­cial advi­sors liable under the afore­men­tioned “par­tic­i­pant” cat­e­go­ry, assert­ing that finan­cial advi­sors’ role in direct list­ings impli­cates Congress’s ini­tial pur­pose in assign­ing lia­bil­i­ty to gate­keep­ers.6 Accord­ing to these schol­ars, finan­cial advi­sors need a legal incen­tive to prop­er­ly weed out untrust­wor­thy com­pa­nies from going for­ward with a direct list­ing, and under­writer lia­bil­i­ty pro­vides such an incen­tive.7 Addi­tion­al­ly, the gate­keep­er jus­ti­fi­ca­tion for lia­bil­i­ty is per­haps even stronger for direct list­ings because such trans­ac­tions are an inno­va­tion. The invest­ing pub­lic has less knowl­edge about how these trans­ac­tions func­tion, and, there­fore, relies on the insti­tu­tion­al knowl­edge and assur­ances of finan­cial advi­sors to a greater extent.8

How­ev­er, giv­en the increas­ing impor­tance of direct list­ings and their gen­uine ben­e­fits, the courts should avoid assign­ing blan­ket lia­bil­i­ty to finan­cial advi­sors. Doing so would dri­ve up the costs of these trans­ac­tions, a fact that even pro­po­nents of lia­bil­i­ty con­cede, and reduce their use­ful­ness.9 In addi­tion, bring­ing in such finan­cial advi­sors as under­writ­ers would require an inter­pre­ta­tion of the statu­to­ry lan­guage that risks includ­ing a seem­ing­ly end­less list of actors that per­form none of the tra­di­tion­al gate­keep­ing duties of an under­writer.10

As such, instead of assign­ing blan­ket lia­bil­i­ty to all finan­cial advi­sors in a direct list­ing trans­ac­tion, the courts should assess whether those actors engaged in gate­keep­ing activ­i­ties on a case-by-case basis. This approach pro­vides the nec­es­sary incen­tive for invest­ment banks to act care­ful­ly in putting for­ward com­pa­nies for pub­lic offer­ings while also cab­in­ing lia­bil­i­ty in a way that is coher­ent and true to Congress’s ini­tial purpose.

First, it is impor­tant to under­stand the cur­rent state of under­writer lia­bil­i­ty and the exist­ing approach­es of the courts. These dis­agree­ments pro­vide ample space for the poten­tial assign­ment of lia­bil­i­ty to finan­cial advi­sors. Sev­er­al cir­cuits have inter­pret­ed the statu­to­ry def­i­n­i­tion of an under­writer broad­ly, assign­ing lia­bil­i­ty to a range of actors that do not per­form the typ­i­cal roles of an under­writer. These cir­cuits have deter­mined that actors who meet a cer­tain lev­el of impor­tance to the trans­ac­tion fit with­in the “par­tic­i­pant” or “sell or offer” cat­e­gories of the statu­to­ry def­i­n­i­tion.11

The Sev­enth Cir­cuit case Hard­en v. Raf­fens­berg­er pro­vides a use­ful dis­til­la­tion of this approach. In Hard­en, the issu­ing com­pa­ny used its own sub­sidiary to under­write its pub­lic offer­ing. In such sit­u­a­tions, New York Stock Exchange rules require qual­i­fied inde­pen­dent under­writ­ers to sign-off on the trans­ac­tion to assure the invest­ing pub­lic that the issu­ing com­pa­ny was trust­wor­thy.12 The court found that such inde­pen­dent under­writ­ers, who per­form none of the tra­di­tion­al func­tions of an under­writer, are statu­to­ry under­writ­ers under the “par­tic­i­pant” cat­e­go­ry because they were nec­es­sary for the trans­ac­tion to move for­ward.13

Often, these assign­ments of lia­bil­i­ty are jus­ti­fied as respon­sive to Congress’s ini­tial pur­pose in cre­at­ing under­writer lia­bil­i­ty. The Sev­enth Circuit’s opin­ion in Hard­en, for exam­ple, focused on the defendant’s role in sig­nal­ing the trust­wor­thi­ness of the issu­ing com­pa­ny to the invest­ing pub­lic as an assump­tion of lia­bil­i­ty.14 The Sec­ond Circuit’s broad def­i­n­i­tion of “under­writer” in SEC v. Chi­nese Con­sol. Benev­o­lent Soci­ety appears more focused on ensur­ing that actors involved in con­nect­ing the invest­ing pub­lic to the issuer be liable as gate­keep­ers.15 In both cas­es, how­ev­er, there is an attempt to hold actors liable as under­writ­ers if they push com­pa­nies onto the invest­ing pub­lic. As a result, their use of var­i­ous tests and broad inter­pre­ta­tions of the statu­to­ry lan­guage seem to be mere mech­a­nisms to reach this result.

How­ev­er, oth­er cir­cuits have inter­pret­ed the statu­to­ry def­i­n­i­tion to refer to a nar­row­er set of actors by lim­it­ing the scope of the “par­tic­i­pant” cat­e­go­ry. In doing so, these cir­cuits cab­in under­writer lia­bil­i­ty to actors that per­form the more tra­di­tion­al roles of an under­writer. They reject the “nec­es­sary” test as over­in­clu­sive, and, instead, insist that the “par­tic­i­pant” cat­e­go­ry should be inter­pret­ed to only include par­tic­i­pants in the actu­al exchange of secu­ri­ties at the core of the trans­ac­tion.16

In re Lehman Broth­ers Mort­gage-Backed Secu­ri­ties Lit­i­ga­tion pro­vides a use­ful exam­ple of this approach. There, the Sec­ond Cir­cuit found that cred­it rat­ing agen­cies were not statu­to­ry under­writ­ers despite the plain­tiffs’ argu­ments that they fit under the “par­tic­i­pant” def­i­n­i­tion because they were nec­es­sary to the trans­ac­tion. In doing so, the Sec­ond Cir­cuit held that the statu­to­ry def­i­n­i­tion should be read to bring in actors essen­tial “to the actu­al dis­tri­b­u­tion of secu­ri­ties” rather than any actor that was impor­tant to the trans­ac­tion.17 The Sec­ond Cir­cuit assert­ed that this read­ing of the def­i­n­i­tion was required to avoid expand­ing lia­bil­i­ty to actors that mere­ly facil­i­tat­ed the trans­ac­tion.18

The Sec­ond Cir­cuit is right to have con­cerns. An unre­strained inter­pre­ta­tion of “under­writer,” which includes any actor deemed “nec­es­sary” by the courts, could lead to lia­bil­i­ty being assigned to actors far out­side Con­gress’ orig­i­nal intent. For exam­ple, law firms are fre­quent­ly inte­gral actors in a secu­ri­ties dis­tri­b­u­tion, and their role is arguably “nec­es­sary” for the trans­ac­tion to move for­ward. How­ev­er, law firms play no gate­keep­ing role between the invest­ing pub­lic and the issu­ing com­pa­ny that would sug­gest they should be liable. Though the exist­ing opin­ions that uti­lize  broad inter­pre­ta­tions of “under­writer” do not reach this far, and though they arguably only uti­lize such inter­pre­ta­tions to ensure real gate­keep­ers are held liable, such opin­ions still cre­ate a slip­pery slope for the pos­si­bil­i­ty of the com­plete decon­struc­tion of a work­able definition.

How­ev­er, even the Sec­ond Cir­cuit acknowl­edges that the statu­to­ry def­i­n­i­tion of under­writer includes not just tra­di­tion­al under­writ­ers. Its def­i­n­i­tion attempts to clar­i­fy that oth­er actors can still be liable if they are deemed essen­tial to the “actu­al dis­tri­b­u­tion” of secu­ri­ties.19 Despite this acknowl­edge­ment, in read­ing the “par­tic­i­pant” cat­e­go­ry so nar­row­ly, the court threat­ens to extin­guish the courts’ abil­i­ty to hold prop­er gate­keep­ers account­able. While it dis­tin­guish­es Hard­en by point­ing out that the Sev­enth Cir­cuit relied on the inde­pen­dent underwriter’s assump­tion of lia­bil­i­ty by step­ping into the gate­keep­er role of pro­mot­ing pub­lic trust in the issu­ing com­pa­ny, it is unclear how such fac­tors could be con­sid­ered under the Sec­ond Circuit’s read­ing of the statute.20

Instead, the courts should adopt a com­pro­mise approach that both assigns lia­bil­i­ty to par­tic­i­pants who act as gate­keep­ers and pre­vents the statu­to­ry def­i­n­i­tion of under­writer from being con­tin­u­ous­ly expand­ed. Courts should read “par­tic­i­pant” with­in the statu­to­ry def­i­n­i­tion to include actors that both serve as con­duits between the invest­ing pub­lic and the issu­ing com­pa­ny and pub­licly vouch for the company’s trust­wor­thi­ness. Focus­ing under­writer lia­bil­i­ty on these two fac­tors, as opposed to the arbi­trary test of whether some­one is “nec­es­sary,” effec­tive­ly lim­its the scope of poten­tial­ly liable actors and cen­ters the analy­sis on the pur­pose behind assign­ing under­writer lia­bil­i­ty. It also guar­an­tees that actors can­not escape lia­bil­i­ty mere­ly by avoid­ing the most­ly unhelp­ful mark­ers of tra­di­tion­al under­writ­ers, such as putting on a road show. Final­ly, this approach rep­re­sents the best con­sol­i­da­tion of cur­rent caselaw, as every cir­cuit could apply it with­out over­turn­ing exist­ing precedent.

Cap­tur­ing con­duits between the invest­ing pub­lic and issu­ing com­pa­nies with­in the statu­to­ry def­i­n­i­tion of “under­writer” com­ports direct­ly with the pur­pose of assign­ing Sec­tion 11 lia­bil­i­ty to gate­keep­ers.21 In search­ing for sig­nals of con­duit sta­tus, the courts would eval­u­ate the role the defen­dant played in relay­ing impor­tant infor­ma­tion or funds between the invest­ing pub­lic and the issu­ing com­pa­ny. A focus on con­duit sta­tus would encap­su­late sev­er­al tra­di­tion­al indi­cia that courts have looked to in the past: book-build­ing, road­shows,22 and the exchange of funds.23 In addi­tion, it is impor­tant that such an inquiry be lim­it­ed to a “two-way street.” Rather than assign­ing lia­bil­i­ty to mar­ket­ing com­pa­nies, the press, and oth­ers who mere­ly dis­trib­ute infor­ma­tion about the com­pa­ny to investors, the courts should instead assess whether actors also take valu­able infor­ma­tion from the invest­ing pub­lic to the issu­ing com­pa­ny, such as over­all demand and price points. In doing so, courts would expand under­writer lia­bil­i­ty to include actors respon­si­ble for help­ing untrust­wor­thy com­pa­nies adapt to the neces­si­ties of the mar­ket while exclud­ing mere mes­sen­gers and facil­i­ta­tors.24

Cap­tur­ing actors who vouch for the cred­i­bil­i­ty of the issu­ing com­pa­ny, in any form, sim­i­lar­ly com­ports with the pur­pose of incen­tiviz­ing gate­keep­ers to take rea­son­able care in push­ing com­pa­nies onto the invest­ing pub­lic. The Sev­enth Cir­cuit in Hard­en implic­it­ly adopt­ed this analy­sis in its dis­cus­sion of the defendant’s per­for­mance of the “same pro­tec­tive func­tion envi­sioned by the 1933 Con­gress.”25 Oth­er courts have sim­i­lar­ly point­ed to the impor­tance of a pub­lic endorse­ment of the issu­ing com­pa­ny in assign­ing lia­bil­i­ty to gate­keep­ers.26 Indeed, lim­it­ing lia­bil­i­ty to actors who pub­licly endorse the issu­ing com­pa­ny sim­ply makes sense. With­out a pub­lic dec­la­ra­tion of sup­port, there can be no con­tention that the actor pushed the com­pa­ny onto the invest­ing pub­lic at all, which is the chief con­cern regard­ing gate­keep­ers.27

How­ev­er, courts should avoid need­less for­mal­ism and should refuse to allow defen­dants to escape lia­bil­i­ty through clever dis­claimers. Instead, the analy­sis should cen­ter on the public’s per­cep­tion of the actor’s con­duct by ask­ing whether a rea­son­able per­son in the invest­ing pub­lic would gain con­fi­dence in the issu­ing com­pa­ny as a result of the actor’s behav­ior. Of course, this test is flex­i­ble, and crit­ics will argue it cre­ates too vague of a stan­dard against which involved par­ties can adapt their behav­ior or that it will result in few­er pro­tec­tions for the invest­ing pub­lic by allow­ing finan­cial advi­sors to escape lia­bil­i­ty under cer­tain cir­cum­stances. How­ev­er, it effec­tive­ly excludes actors who remain behind the scenes in a trans­ac­tion while also prop­er­ly incen­tiviz­ing actors who may sat­is­fy its test to take care in their pro­mo­tion and inves­ti­ga­tion of the issu­ing com­pa­ny. The fear of poten­tial lia­bil­i­ty, plus the incen­tive to exer­cise due care that the due dili­gence defense for under­writ­ers cre­ates, pro­vides ample pro­tec­tion with­out over­ex­pand­ing the def­i­n­i­tion of under­writer.28

Uti­liz­ing these two stan­dards, as opposed to the infi­nite­ly broad “nec­es­sary” test of the Sev­enth Cir­cuit or the severe­ly lim­it­ed approach of the Sec­ond Cir­cuit in Lehman Broth­ers, also best rec­on­ciles the diverg­ing opin­ions on the scope of under­writer lia­bil­i­ty. As stat­ed, the courts appear to be adopt­ing broad or nar­row read­ings of the statu­to­ry def­i­n­i­tion in an attempt to best reflect the pur­pose of assign­ing lia­bil­i­ty to gate­keep­ers.29 Rather than require the courts to first wres­tle with their pre­ferred scope, the pro­posed test of eval­u­at­ing gate­keep­er qual­i­ties would implant that pur­pose-based analy­sis into the actu­al inter­pre­ta­tion of the statute, pro­vid­ing a clear def­i­n­i­tion and a tex­tu­al basis for con­duct­ing the same analy­sis that most courts have already been doing.

Because the role of finan­cial advi­sors in a direct list­ing remains large­ly unde­fined, it makes sense to apply this gate­keep­er lia­bil­i­ty test to the par­tic­u­lar facts of the trans­ac­tion as opposed to cre­at­ing a blan­ket rule of inclu­sion or exclu­sion. For exam­ple, a finan­cial advi­sor who both uses its net­work to assess demand and mar­kets a com­pa­ny to the invest­ing pub­lic may sat­is­fy this test as a con­duit. How­ev­er, a finan­cial advi­sor who mere­ly pre­pared slides that were shown to investors and helped sum­ma­rize a company’s finan­cial infor­ma­tion would not be held liable. Sim­i­lar­ly, an invest­ment bank that signs the reg­is­tra­tion state­ment and prospec­tus of the issu­ing com­pa­ny may be liable because it lent its cred­i­bil­i­ty to the trans­ac­tion pub­licly, yet a finan­cial advi­sor who played no pub­lic role in the trans­ac­tion would fail to sat­is­fy the test.

These results are in line with the over­all pur­pose of under­writer lia­bil­i­ty and prop­er­ly incen­tivize finan­cial advi­sors against using direct list­ings as a work-around of liability.

*****

Instead of squab­bling over the cor­rect line to draw in inter­pret­ing the statu­to­ry def­i­n­i­tion of “under­writer,” the courts should instead lead with an analy­sis of the defendant’s gate­keep­ing func­tions. This analy­sis effec­tive­ly cab­ins lia­bil­i­ty to a coher­ent set of actors, which reflects Congress’s pur­pose and pol­i­cy con­sid­er­a­tions. Finan­cial advi­sors in a direct list­ing should be eval­u­at­ed in the same man­ner, and their lia­bil­i­ty as under­writ­ers should depend on whether they act­ed as con­duits in the trans­ac­tion or pub­licly expressed con­fi­dence in the issu­ing company.


* Gra­ham Ellis is a J.D. Can­di­date (2022) at New York Uni­ver­si­ty School of Law. This piece is a com­men­tary on the 2021 prob­lem at the Irv­ing R. Kauf­man Memo­r­i­al Secu­ri­ties Law Moot Court Com­pe­ti­tion in New York, host­ed by the Ford­ham Uni­ver­si­ty School of Law. The issue in the prob­lem dealt with the ques­tion of whether invest­ment bankers that act as finan­cial advi­sors in a direct list­ing trans­ac­tion are statu­to­ry under­writ­ers for pur­pos­es of lia­bil­i­ty under Sec­tion 11 of the Secu­ri­ties Act. The views expressed in this arti­cle do not nec­es­sar­i­ly rep­re­sent the views of the author on this point of law. Rather, this arti­cle is a dis­til­la­tion of one side of the argu­ments made by the team at the Irv­ing R. Kauf­man Memo­r­i­al Secu­ri­ties Law Competition.

1. See, e.g., Rein­er H. Kraak­man, Cor­po­rate Lia­bil­i­ty Strate­gies and the Costs of Legal Con­trols, 93 Yale L.J. 857, 890 (1984).

2. Ronald J. Gilson & Reinier H. Kraak­man, The Mech­a­nisms of Mar­ket Effi­cien­cy, 70 Va. L. Rev. 549, 613–21 (1984) (dis­cussing the role of invest­ment banks as rep­u­ta­tion­al inter­me­di­aries between issuers and investors).

3. 15 U.S.C. § 77b(a)(11).

4.  See Yun­pegn (Patrick) Xiong: J.D. Can­di­date 2021, SPACs and Direct List­ings: The Death Knell for Tra­di­tion­al IPOs?, Berek­ley Law School; Vol. 109 Exec­u­tive Edi­tor, Calif. L.Rev. (explain­ing the rise of direct list­ings and their benefits).

5. See, e.g., Ben­jamin J. Nick­er­son, The Under­ly­ing Under­writer: An Analy­sis of the Spo­ti­fy Direct List­ing, 86 U. Chi. L. Rev. 985, 1014 (2019).

6. Id. at 1014–24.

7. See, e.g., Anat Beck, Robert Rapp, & John Liv­ing­stone, Invest­ment Bankers as Underwriters–Barbarians or Gate­keep­ers? A Response to Brent Hor­ton on Direct List­ings, 73 S.M.U. L. Rev. F. 251, 256–58 (2020).   

8. See Gilson, supra note 3, at 618 (“Our analy­sis sug­gests that invest­ment bankers play a third role, that of an infor­ma­tion and rep­u­ta­tion­al inter­me­di­ary, which is par­tic­u­lar­ly impor­tant in the con­text of new issues and oth­er inno­va­tions.” (empha­sis added)).

9. Nick­er­son, supra note 6, at 1014.

10. See In re Lehman Broth­ers Mortg. Backed Sec. Lit­ig., 650 F.3d. 167, 177–80 (2d Cir. 2011).

[11] See, e.g., SEC v. Plat­forms Wire­less Int’l Corp., 617 F.3d 1072, 1086 (9th Cir. 2010) (requir­ing undewrit­ers to be an “essen­tial cog in the machine”); SEC v. Int’l Chem. Dev. Corp., 469 F.2d 20, 32 (10th Cir. 1972) (defin­ing par­tic­i­pa­tors as per­form­ing a “vital aspect in the steps nec­es­sary to the dis­tri­b­u­tion”); Hard­en v. Raf­fens­berg­er, Hugh­es & Co., 65 F.3d 1392, 1403 (7th Cir. 1995) (uti­liz­ing the Sev­enth Circuit’s nec­es­sary test).

12. See NYSE Guide Rule 5121(a)(2) (CCH).

13. Hard­en, 65 F.3d at 1403 (assign­ing under­writer lia­bil­i­ty to an inde­pen­dent under­writer that took no actu­al role in the transaction).

14. Id. (not­ing that issuers could mis­lead investors in explain­ing why assign­ing lia­bil­i­ty is important).

15. See SEC v. Chi­nese Con­sol. Benev­o­lent Soc’y, 120 F.2d 738, 740–41 (2d Cir. 1941) (“But the aim of the Secu­ri­ties Act is to have infor­ma­tion avail­able for investors. This objec­tive will be defeat­ed if buy­ing orders can be solicit­ed which result in unin­formed and improv­i­dent purchases.”).

16. See, e.g., In re Lehman Broth­ers, 650 F.3d 167, 182 (adopt­ing, gen­er­al­ly, a nar­row­er definition).

17. Id. at 176–80.

18. Id. at 181 (not­ing the risk of bring­ing in every actor that had any role in the trans­ac­tion under the definition).

19. Id. at 176.

20. Id. at 179 (“More­over, Hard­en is eas­i­ly dis­tin­guished from the instant case . . . .”).

21. See SEC v. Lybrand, 200 F. Supp. 2d 384, 393 (S.D.N.Y. 2002) (quot­ing Thomas Lee Hazen, The Law of Secu­ri­ties Reg­u­la­tion 431 (4th ed. 2002)).

22. See N.J. Car­pen­ters Vaca­tion Fund v. Roy­al Bank of Scot. Grp., PLC, 720 F. Supp. 2d 254, 263 (S.D.N.Y. 2010) (stat­ing that mar­ket­ing secu­ri­ties to investors and assist­ing in investor road shows would be fac­tu­al evi­dence of under­writer status).

23. See gen­er­al­ly, SEC v. Chi­nese Con­sol. Benev­o­lent Soc’y, 120 F.2d 738 (2d Cir. 1941).

24. See In re Lehman Broth­ers Mortg.-Backed Sec. Lit­ig., 650 F.3d 167, 181 (2d Cir. 2011) (explain­ing the need to avoid assign­ing lia­bil­i­ty to all actors that mere­ly facil­i­tate the transaction).

25. See Hard­en v. Raf­fens­berg­er, Hugh­es & Co., 65 F.3d 1392, 1403 (7th Cir. 1995).

26. See, e.g., McFar­land v. Mem­o­rex Corp., 493 F. Supp. 631, 646 (N.D. Cal. 1980) (“Under­writ­ers are sub­ject­ed to lia­bil­i­ty because they hold them­selves out as pro­fes­sion­als who are able to eval­u­ate the finan­cial con­di­tion of the issuer.“); In re Ref­co, Inc. Sec. Lit­ig. 503 F. Supp. 2d 611, 629 (S.D.N.Y 2007) (“Plain­tiffs have alleged no facts sug­gest­ing the Bond Under­writer Defen­dants held them­selves out in any respect as to the pub­lic offer­ing; on the con­trary, any role they may have played in that offer­ing was nev­er pub­licly acknowledged.”).

27. Brent J. Hor­ton, Spotify’s Direct List­ing: Is It a Recipe for Gate­keep­er Fail­ure?, 72 S.M.U. L. Rev. 177, 188–91 (2019) (express­ing con­cern that com­pa­nies are “thrust­ing a trou­bled com­pa­ny on poten­tial investors”).

28. See 15 USC § 77k(b)(3), (c). For the lead­ing case on the “due dili­gence” defense, see Escott v BarChris Con­struc­tion Corp, 283 F. Supp. 643, 682–703 (S.D.N.Y. 1968) (estab­lish­ing stan­dards of “rea­son­able” dili­gence for lawyers, accoun­tants, and under­writ­ers as a defense to § 11 claims). See also Ernest L. Folk III, Civ­il Lia­bil­i­ties under the Fed­er­al Secu­ri­ties Acts: The BarChris Case Part I—Section 11 of the Secu­ri­ties Act, 55 Va. L. Rev. 1, 19–49 (1969) (sum­ma­riz­ing due dili­gence defens­es under the Secu­ri­ties Act).

29. See Hard­en, 65 F.3d at 1403 (jus­ti­fy­ing lia­bil­i­ty on the grounds that it is nec­es­sary to pro­tect the pub­lic); see also In re Lehman Broth­ers Mortg. Backed Sec. Lit­ig., 650 F.3d 167, 183 (2d Cir. 2011) (jus­ti­fy­ing exemp­tion from lia­bil­i­ty because the cred­it rat­ing agency did not assume lia­bil­i­ty by mere­ly boost­ing con­fi­dence in the transaction).