HARDIMAN, Circuit Judge.
This case comes to the Court as a certified interlocutory appeal. The sole question presented is whether, under Section 11 of the Securities Act of 1933, 15 U.S.C. § 77k, a nonvoting board observer affiliated with an issuer's placement agent is a "person who, with his consent, is named in the registration statement as being or about to become a director[ ] [or] person performing similar functions . . . ." Id. § 77k(a)(3).
We think not. As required by the text of § 77k(a)(3), our inquiry begins and ends with the registration statement's description of the Defendants. We hold as a matter of law that the Defendants' functions are not "similar" to those that board directors perform, so we will reverse the District Court's order and direct the entry of summary judgment for the Defendants.
Tibet Pharmaceuticals, Inc. is a holding company. Through an array of parent-subsidiary relationships and contractual rights, Tibet "effectively control[led]" Yunnan Shangri-La Tibetan Pharmaceutical Group Limited (Yunnan), an operating company that manufactured and sold traditional Tibetan medicines. Dartell v. Tibet Pharm., Inc., 2017 WL 1944106, at *2 (D.N.J. May 10, 2017). This case involves Tibet's attempt to raise capital for those operations through an initial public offering (IPO).
Hayden Zou was an early investor in Tibet and the sole director of China Tibetan Pharmaceuticals Limited, a wholly owned subsidiary of Tibet. Tibet's ability to control Yunnan flowed through China Tibetan. In late 2009, Zou told L. McCarthy Downs, III, a managing director at the investment bank Anderson & Strudwick, Inc. (A&S), about Tibet. The two discussed the prospect of a Tibet IPO, and A&S later agreed to serve as Tibet's placement agent. Zou and Downs then worked together to bring Tibet public. Tibet's IPO registration statement became effective in late 2010.
Zou and Downs were neither signatories to the registration statement nor named in it as directors of Tibet. Instead, they were listed as nonvoting board observers chosen by A&S. Though Zou and Downs would have no formal powers or duties, the registration statement explained "they may
As it turned out, the registration statement
Just before Tibet filed its amended final prospectus, the Chinese government froze all of Yunnan's assets. Tibet did not disclose that either. The IPO closed soon thereafter, and Tibet and its underwriters offered 3 million shares to the public at $5.50 per share. But Yunnan still hadn't paid what it owed, so the Agricultural Bank of China auctioned off the company's assets. This prompted the NASDAQ to halt trading in Tibet's stock, and its price plummeted.
Plaintiffs sued Zou, Downs, Tibet, A&S, the IPO's auditor, and several other Defendants on behalf of a class of stock purchasers. As relevant to this certified interlocutory appeal, Plaintiffs alleged Zou and Downs violated Section 11 of the Securities Act of 1933, 15 U.S.C. § 77k(a).
Section 11 imposes near-strict liability for untruths and omissions made in a registration statement. See In re Suprema Specialties, Inc. Sec. Litig., 438 F.3d 256, 269 (3d Cir. 2006). Unlike antifraud cases, a § 11 plaintiff need not allege scienter, reliance,
Because § 11 is such strong medicine, and to meet its purpose of enforcing accurate registration statement disclosure, it applies only to limited and enumerated categories of defendants. See Herman & MacLean, 459 U.S. at 381-82, 103 S.Ct. 683; Lehman Bros., 650 F.3d at 185 ("It is precisely because § 11 `gives rise to liability more readily,' however, that it is [sic] applies `more narrowly' than § 10(b)." (quoting Morgan Stanley, 592 F.3d at 359-60)). Among those defendants is "every person who, with his consent, is named in the registration statement as being or about to become a director, person performing similar functions, or partner." 15 U.S.C. § 77k(a)(3).
The District Court, finding there were material issues of fact about whether Zou and Downs had been named as people
App. 178; see App. 230.
After acknowledging that Zou and Downs would not be able to vote, the District Court observed "they may nevertheless significantly influence the outcome of matters submitted to the Board of Directors for approval." Dartell, 2017 WL 1944106, at *10. In the Court's view, because Zou and Downs had the power to "influence," this meant they "arguably had more influence than any individual board member, who could only cast a single vote." Id. "The Court's only hesitation" in denying summary judgment was that the registration statement used the word "may" rather than "shall" or "will." Id. at *11. That meant it "was not necessarily mandatory that the Board Observers exercise their `significant influence.'" Id. Still, the Court determined that whether Zou and Downs were covered by § 11 was a jury question. Id.
Zou and Downs moved for certification of that order under 28 U.S.C. § 1292(b). The District Court granted the motion, finding the underlying legal question—whether Zou and Downs could be liable under § 11—met the requirements of § 1292(b). First, the District Court found the question was a controlling question of law, because its conclusion would create reversible error if we disagreed on appeal. Second, the District Court found there was substantial ground for difference of opinion, despite the question being one of first impression in the courts of appeals, because "Section 11 is narrowly construed" and reasonable jurists could therefore disagree with its conclusion. Dartell v. Tibet Pharm., Inc., 2018 WL 994896, at *5 (D.N.J. Feb. 21, 2018). Finally, the Court thought an interlocutory appeal would materially advance the ultimate termination of the litigation, because it had already granted summary judgment for Zou and Downs on all counts save the one alleging § 11 liability. If we disagreed with the District Court, the litigation would thus be at an end. So the District Court certified the following question:
Order at 2, No. 2-14-cv-03620 (D.N.J. Feb. 21, 2018), ECF No. 313. We granted Zou and Downs's timely Petition for Permission to Appeal and now reverse.
The Securities Act does not define "director," so we turn to dictionary definitions from the time Congress enacted the statute. See New Prime Inc. v. Oliveira, ___ U.S. ___, 139 S.Ct. 532, 539, 202 L.Ed.2d 536 (2019). "Director" could mean "[o]ne who . . . directs, rules, or guides; a guide, a conductor; `one that has authority over others; a superintendent; [or] one that has the general management of design or work.'" Director, Oxford English Dictionary 392 (1st ed. 1933). Or, in a more specialized sense related to business organizations, it could mean "[a] member of a board appointed to direct or manage the affairs of a commercial corporation or company." Id.; see Directors, Black's Law Dictionary 581 (3d ed. 1933) (defining "director" as a "person[ ] appointed or elected according to law, authorized to manage and direct the affairs of a corporation or company").
Because § 77k(a)(3) also lists "partner[s]" (in context, another business organization title) and because § 77k(a) lists other statutory defendants by technical titles ("underwriters" for example), it seems clear enough Congress meant "director" in the second, specialized sense. See Yates v. United States, 574 U.S. 528, 135 S.Ct. 1074, 1085, 191 L.Ed.2d 64 (2015) ("[A] word is known by the company it keeps."); Bradley v. United States, 410 U.S. 605, 609, 93 S.Ct. 1151, 35 L.Ed.2d 528 (1973) ("[T]he law uses familiar legal expressions in their familiar legal sense." (quoting Henry v. United States, 251 U.S. 393, 395, 40 S.Ct. 185, 64 S.Ct. 322 (1920))).
Beyond the text of the Securities Act, the Exchange Act definition of director—which uses the phrase "director of a corporation"—reinforces our conclusion. See 15 U.S.C. § 78c(a)(7) ("The term `director' means any director of a corporation or any person performing similar functions with respect to any organization, whether incorporated or unincorporated."). So does Securities Act Regulation C, which defines "director" the same way. 17 C.F.R. § 230.405.
What functions, then, typify directorship? "The whole of the directors collectively form the board of directors." Directors, Black's Law Dictionary 581 (3d ed. 1933). Acting as a board, directors are the corporation's agents. 2 Fletcher Cyc. Corp. § 507 (Sept. 2018 update); 4 Fletcher Cyc. Corp. § 2261 (1918). The board manages the corporation's affairs by: (1) selecting senior officers; (2) controlling executive
A commonsense example explains why this is so. We might describe a "sedan" as similar to a "truck"—both are vehicles, after all. But an ordinary English speaker would not say a sedan is similar to a "light-duty pickup truck." The use of a narrowing term of art that distinguishes one class of trucks from others connotes a likeness of specific functions—beyond basics like personal transportation. So too the question here is not whether Zou and Downs are "similar" to "directors" in some abstract sense. The question is rather whether they possess at least some of the core powers and responsibilities that define corporate directorship under the law of corporations.
Having defined our terms, we turn to consider what sources are relevant to deciding whether a person is a proper § 77k(a)(3) defendant, and who ought to make that decision. As to the first question, the District Court held only the registration statement itself is relevant. We agree. It follows from that holding that whether one is a proper defendant under § 77k(a)(3) is a question of law for the court, not a question of fact for the jury.
What evidence is relevant to our inquiry? Section 77k(a)(3) asks whether a defendant is "with his consent, [ ] named in the registration statement as being or about to become . . . [a] person performing similar functions" to a director. (Emphasis added). The phrase "named in the registration statement as" compels reference to the description provided there. And § 77k(a)(3)'s text, structure, surrounding provisions, and requirement of consent to be named all tell us that the inquiry stops there.
For starters, it would be odd as a matter of logic to consider defendants' real-world
Section 77k(a)(3)'s syntax leads to the same conclusion. To hold extrinsic evidence relevant would substitute an "and" for the "as"—so that once a court finds a person "named" in the registration statement, it then determines whether in fact the person's role is, or will be, director-like. But the statute doesn't say "named in the registration statement and . . . about to become . . . [a] person performing similar functions." Read slightly differently, Plaintiffs' preferred interpretation would excise the phrase "named in the registration statement as" altogether and rewrite § 77k(a)(3) to say "every person who, with his consent, is or is about to become a director [or] person performing similar functions." That language too would ask whether Zou and Downs were in fact about to become quasi-directors. And it would make sense then to consider extrinsic evidence. But § 77k(a)(3) doesn't say that either.
Our reading is also supported by § 77k(a)'s provision for expert liability, which uses language much like § 77k(a)(3):
15 U.S.C. § 77k(a)(4) (emphases added). By making the "statement" the subject of the phrase "purports to have been prepared or certified," § 77k(a)(4) limits the inquiry into whether an expert is "named as having prepared or certified" the statement to the face of the document in which it's made. See Herman & MacLean, 459 U.S. at 386 n.22, 103 S.Ct. 683 (explaining "accountants with respect to parts of a registration statement which they are not named as having prepared or certified" cannot be held liable under § 77k(a)(4) "even if [they] engaged in fraudulent conduct while participating in the registration statement").
Of course, there was no reason to include the "purports to have been prepared or certified" language in § 77k(a)(3). That's because liability under § 77k(a)(3) is not limited to particular statements within the registration statement. But § 77k(a)(4) confirms the commonsense construction that the phrase "named . . . as" asks only about the words of the document doing the naming. And § 77k(a)'s other subsections likewise suggest the phrase "named . . . as" has this meaning.
Furthermore, it's clear Congress knew how to extend liability to a broader class of defendants when it wanted to—because it did. Unlike § 77k(a)(3) and (4), two of § 77k(a)'s enumerated categories are phrased without reference to how a person is named in the registration statement. See 15 U.S.C. § 77k(a)(2) (liability for "every person who was a director of (or person performing similar functions) or partner in the issuer at the time of the filing of the part of the registration statement with respect to which his liability is asserted" (emphasis added)); id. § 77k(a)(5) (liability for "every underwriter with respect to
Finally, the requirement of consent to be named, see § 77k(a)(3), confirms that our inquiry stops at the text of the registration statement. It is hard to see how this consent could be informed if a person's status (and potential liability) were speculative and mutable based on facts and events beyond the text of the registration statement. See 5 Arnold S. Jacobs, Disclosure & Remedies Under the Sec. Laws § 3:17 (Dec. 2018 update) ("Questions regarding the interpretation" of the phrase "performing similar functions" "rarely should arise because the person would not give consent unless he thought he was within the ambit of one of the terms").
Having decided that the registration statement controls who is subject to § 77k(a)(3) liability, it follows that courts, not juries, must determine the scope of that provision and whether the terms of a registration statement bring a defendant within it. "The construction of written instruments is one of those things that judges often do and are likely to do better than jurors unburdened by training in exegesis." Markman v. Westview Instruments, Inc., 517 U.S. 370, 388, 116 S.Ct. 1384, 134 L.Ed.2d 577 (1996); see also 10A Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 2725 (4th ed. Sept. 2018 update) ("[I]f the only issues that are presented involve the legal construction of statutes . . . or the legal sufficiency of certain documents, summary judgment would be proper." (footnotes omitted)). And this inquiry involves "the use of legal skills to determine," Merck Sharp & Dohme Corp. v. Albrecht, ___ U.S. ___, 139 S.Ct. 1668, 1679-80, 203 L.Ed.2d 822 (2019), the significance of statements that are not in dispute.
Even if the inquiry included subsidiary questions of fact, "[u]niformity would . . . be ill served," Markman, 517 U.S. at 391, 116 S.Ct. 1384, by submitting to juries the threshold question whether the face of a registration statement brings a defendant within § 77k(a)(3). Registration statements in public securities offerings are addressed to the whole investing. public and are likely to describe putative defendants' functions in familiar but technical terms of art. It is important for issuers, investors, and putative defendants to know the scope of quasi-director liability. We hold that whether a defendant is "named in the registration statement as being or about to become a director[ ] [or] person performing similar functions," § 77k(a)(3), is a question of law for the court.
As we have explained, the function of a board of directors is to direct and manage the company's affairs. Individual directors do this by formal voting. And because each director bears part of the ultimate responsibility for the company's fate, each owes duties of care and loyalty and may be voted out for mismanagement (or for no reason at all). Zou and Downs's roles, as described in the registration statement, are not "of a like nature or kind," Similar, Oxford English Dictionary 59 (1st ed. 1933).
Three features differentiate Zou and Downs from directors. First, and most fundamentally, Zou and Downs cannot vote for board action. Second, they are aligned with the placement agent, A&S, not Tibet. And third, their tenures are set to end automatically, with no opportunity to vote them out. Without the ability to manage the company's affairs, Zou and Downs lack directors' most basic power. As agents of Tibet's placement agent, their loyalties aren't with Tibet's shareholders—and loyalty to shareholders is as vital to directorship as the power to manage. And unlike Tibet's directors, their tenure is not subject to shareholder vote. Add to that the registration statement's express provision for directors' fiduciary duties, with no similar provision for Zou and Downs.
Consider a hypothetical investment analyst for a research firm. Like Zou and Downs, he owes no duties to the issuer and is affiliated with a different entity. He might also enjoy special access to the issuer's board and management. Cf. Regulation FD, 17 C.F.R. § 243.100 (seeking to curtail special access to non-public information). Or he might not. But either way, access to managers and directors alone does not make a person a quasi-director. Consider the analyst's power to influence the issuer's board. It might be substantial, depending on the analyst's reputation and influence in the industry. Or it might not. In either case, he has the same "power" Zou and Downs do—the "possibility" of "significantly influenc[ing] the outcome of matters submitted to the Board of Directors for approval." App. 178. The analyst's influence—his power to persuade—might even "impact [the issuer's] shareholders' ability to impact decisions related to [its] operations." Id. Or it might not. But no one would argue that our hypothetical analyst is in any meaningful way "similar" to a board member.
Our conclusion is also supported by Securities Act § 6(a) and the consent requirement of § 77k(a)(3). And it fits both the scant caselaw interpreting § 77k(a)(3) and the only case in which our Court has interpreted parallel language.
First, Securities Act § 6(a), 15 U.S.C. § 77f(a), which lists who must sign
And third, our conclusion tracks the only cases to interpret the phrase "performing similar functions" in § 77k(a)(3), as well as our Court's lone interpretation of the same phrase in a different context. The two district courts to consider the phrase suggested it requires something like formal powers. See Mersay v. First Republic Corp. of Am., 43 F.R.D. 465, 469 (S.D.N.Y. 1968) (member of "executive advisory board" didn't qualify, because "[m]ost probably, this phrase is concerned with imposing liability upon the person who is actually directing the affairs of the corporation, but who, for the purpose of avoiding liability, shuns the formal title `director'"); Lockheed Aircraft Corp. v. Rathman, 106 F.Supp. 810, 812 (S.D. Cal. 1952) ("It is quite apparent that Congress added the `or any person' provision to apply to organizations which did not have directors in name but did have persons who performed functions similar to those ordinarily performed by the directors of a corporation.").
And the only case in which our Court interpreted the phrase (in a different context) is likewise consistent with the conclusion that "performing similar functions" entails a similarity of formal powers and duties. In First Liberty Investment Group v. Nicholsberg, 145 F.3d 647 (3d Cir. 1998), we applied the phrase in a National Association of Securities Dealers arbitration provision that borrowed its language from the Exchange Act. We held a purportedly independent contractor "perform[ed] similar functions" to those of a "branch manager" of a broker-dealer. Id. at 651-52. Among the reasons why were that the broker-dealer: provided the contractor "facilities . . . . for execution of transactions"; designated the contractor's office "an entity allowed . . . to offer and solicit the sales of securities"; "gave [the contractor] geographic exclusivity . . . and agreed not to open competing offices without [his] prior written consent"; required the contractor to comply with its policies and seek prior approval for securities solicitation; and forbade the contractor to transact with other broker-dealers. Id. at 652.
The contractor was thus closely affiliated with the broker-dealer, and operated very much like a branch manager would—with formal powers, rights, and duties to match. See id. ("[T]he parties' total relationship, including the limitations placed by [the broker-dealer] both on [the contractor's] conduct of his business and on its own conduct of business, amount to . . . placing [the contractor] in much the same practical position that would be occupied by a branch manager in charge of [the broker-dealer's] only New York metropolitan area office."). Unlike that close fit, Zou and Downs's role as nonvoting board observers does not put them "in much the same practical position," id., as Tibet's directors.
Plaintiffs' two main arguments to the contrary are unpersuasive. First, they contend the registration statement contains a "clear grant of limitless power to Appellants to `significantly' influence the `outcomes'
The Sixth Circuit made a similar point in Bennett v. Durham, 683 F.3d 734 (6th Cir. 2012), a case interpreting "performing similar functions" language in a state blue sky statute. Id. at 736 (quoting Ky. Rev. Stat. § 292.480). The plaintiffs there argued the company's "officers and directors `relied completely' on [the defendant's] work and would have `structured their sales operation in any way [the defendant] advised.'" Id. at 738 (quoting appellate brief). The court rejected that argument as "suggest[ing] only that [the company's] actual partners, officers and directors relied heavily on [the defendant], not that [he] was the one calling the shots." Id.
Finally, Plaintiffs insist the Securities Act is a remedial statute that we should construe broadly. That may be so, see Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128, 151, 92 S.Ct. 1456, 31 L.Ed.2d 741 (1972), but the argument misses the mark here. Cf. SEC v. Zandford, 535 U.S. 813, 820, 122 S.Ct. 1899, 153 L.Ed.2d 1 (2002) ("[T]he statute must not be construed so broadly as to convert every common-law fraud that happens to involve securities into a violation of § 10(b). . . ."). Congress expressly circumscribed the class of defendants subject to § 11 liability—and it did so for good reason. Section 11 "was designed to assure compliance with the disclosure provisions of the [Securities] Act by imposing a stringent standard of liability on the parties who play a direct role in a registered offering." Herman & MacLean, 459 U.S. at 381-82, 103 S.Ct. 683 (footnote omitted); cf. Lehman Bros., 650 F.3d at 181 (discussing limited scope of § 11 underwriter status). Plaintiffs' broad construction argument relies "on the flawed premise" that the statute "`pursues' its remedial purpose `at all costs.'" Encino Motorcars, LLC v. Navarro, ___ U.S. ___, 138 S.Ct. 1134, 1142, 200 L.Ed.2d 433 (2018) (quoting Am. Express Co. v. Italian Colors Rest., 570 U.S. 228, 234, 133 S.Ct. 2304, 186 L.Ed.2d 417 (2013)). Such an approach "frustrates rather than effectuates legislative intent" because it "simplistically . . . assume[s] that whatever furthers the statute's primary objective must be the law." Rodriguez v. United States, 480 U.S. 522, 526, 107 S.Ct. 1391, 94 L.Ed.2d 533 (1987) (per curiam).
Plaintiffs also overstate the concern that a broad construction is necessary to hold wrongdoers accountable. Section 11 is but one part of an overlapping web of civil liability provisions. Recall that Plaintiffs allege "Zou and Downs orchestrated the fraudulent sale of $16.5 million of worthless Tibet stock." Obasi Br. 10. Exchange Act § 10(b), 15 U.S.C. § 78j, and Rule 10b-5, 17 C.F.R. § 240.10b-5, have been interpreted to grant a broad private right of action for fraud in the purchase or sale of securities. See Janus Capital Grp., Inc. v. First Derivative Traders, 564 U.S. 135, 141-42, 131 S.Ct. 2296, 180 L.Ed.2d 166 (2011). Or take Securities Act § 12(a)(2), 15 U.S.C. § 77l(a)(2), which provides a right of rescission for private plaintiffs where a seller makes misleading statements or omissions in a prospectus. See Gustafson v. Alloyd Co., 513 U.S. 561, 564, 567, 115 S.Ct. 1061, 131 L.Ed.2d 1 (1995). Securities Act § 15, 15 U.S.C. § 77o, provides yet another remedy—one that Plaintiffs sought and then abandoned. Then there's Exchange Act § 18, 15 U.S.C. § 78r, which
For these reasons, "we will not presume with [Plaintiffs] that any result consistent with their account of the statute's overarching goal must be the law but will presume more modestly instead `that the legislature says what it means and means what it says.'" Henson v. Santander Consumer USA Inc., ___ U.S. ___, 137 S.Ct. 1718, 1725, 198 L.Ed.2d 177 (2017) (quoting Dodd v. United States, 545 U.S. 353, 357, 125 S.Ct. 2478, 162 L.Ed.2d 343 (2005)).
Because Zou and Downs were not "named in the registration statement as being or about to become [ ] director[s] [or] person[s] performing similar functions," we will reverse the District Court's denial of summary judgment and direct the entry of judgment for Zou and Downs.
COWEN, dissenting.
The District Court certified the following question for interlocutory appeal:
(2/21/18 Order at 2.) Because I agree with the District Court that this question must be answered in the affirmative, I respectfully dissent.
I do not really take issue with the basic definitions of "director" and "similar" offered by the majority, although I do reject its application of these concepts. "[I]n a more specialized sense related to business organizations, [`director'] could mean `[a] member of a board appointed to direct or manage the affairs of a commercial corporation or company.' [
Even if Section 11(a)(3) of the Securities Act thereby requires more than some slight similarity, the majority fails to recognize the expansive scope of this "similar"
More broadly, the Court should not overlook the purposes of the 1933 Securities Act as well as Section 11 in particular. The "basic purpose" of this legislation was "to provide greater protection to purchasers of registered securities."
Accordingly, a person may be named as performing similar functions to a director even if he or she does not possess the directors' "formal power to direct and manage a corporation, and the responsibilities and duties that accompany those powers" (
(JA230.) A similar subsection was included as part of the
In connection with this offering, we have agreed to allow our Placement Agent to designate two non-voting observers to our Board of Directors until the earlier of the date that:
(JA178.)
According to the majority, there are three features differentiating Defendants from directors: (1) "First, and most fundamentally, Zou and Downs cannot vote for board action" while individual directors direct and manage company affairs by means of formal voting (Majority Opinion at 189); (2) they are aligned with the placement agent as opposed to Tibet and its shareholders; and (3) their tenures are set to end automatically without any opportunity for the shareholders to vote them out. There are some obvious differences between observers as described by the registration statement and directors (after all, even the registration statement acknowledged Defendants' inability to vote), and I agree with the District Court that "simply being named a board observer did not open Downs or Zou up to Section 11 liability because the title does not indicate that such a position necessarily performs similar functions to a director,"
Given the plain language of the registration statement, Defendants are clearly named as possessing powers or abilities that are of a like nature or kind as the directors' power to direct or manage the affairs of the corporation:
According to the majority, "[t]hat Zou and Downs, as nonvoting observers, `may' influence board decisions is not a grant of power at all." (Majority Opinion at 191.) It compares Defendants to a hypothetical investment analyst for a research firm, who might (or might not) have special access to the issuer's board of directors and management, power to influence the board based on the analyst's reputation and influence in the industry, and whose "influence—his power to persuade—might even `impact [the issuer's] shareholders' ability to impact decisions related to [its] operations'" (
First, the releases interpret the meaning of "officers and directors" "for Section 16 purposes." Release No. 17991, 1991 WL 292000, at *4; see Release No. 18114, 1981 WL 31301, at *5 & n.15. The releases' purposive interpretations revolve around access to inside information because § 16 is an insider trading provision. See Release No. 17991, 1991 WL 292000, at *2; Release No. 18114, 1981 WL 31301, at *5 & n.15; see also Foremost-McKesson, Inc. v. Provident Sec. Co., 423 U.S. 232, 253, 96 S.Ct. 508, 46 L.Ed.2d 464 (1976) ("Congress thought that all short-swing trading by directors and officers was vulnerable to abuse because of their intimate involvement in corporate affairs."). But § 11 is about ensuring the accuracy of registration statements in securities offerings by issuers, not deterring short-swing profiting by insiders through mandated disclosure of holdings and trades. Compare Omnicare, Inc. v. Laborers Dist. Council Const. Indus. Pension Fund, ___ U.S. ___, 135 S.Ct. 1318, 1323, 191 L.Ed.2d 253 (2015) ("Section 11 of the Act promotes compliance with these disclosure provisions by giving purchasers a right of action against an issuer or designated individuals . . . .") with 1 Louis Loss et al., Securities Regulation 6.E.1. (6th ed. 2018) ("[S]ection 16 remains a useful tool for preventing speculative abuses by insiders and for focusing their attention on their fiduciary duty and on long-term corporate health, rather than on short-term trading profits . . . ." (quoting Report of the Task Force on Regulation of Insider Trading—Part II: Reform of Section 16, 42 Bus. Law. 1087, 1092 (1987))).
Section 16's divergent goals manifest in reasoning that would make little sense in the § 11 context. Release No. 17991 explains, for instance, that the terms "[o]fficers, directors, and ten percent holders . . . . also include[] an officer or director who has terminated officer or director status but continues to be subject to reporting under Section 16." 1991 WL 292000, at *2 n.14. That expansion of the term's definition may be well-advised in the insider trading context. But it has no connection to the registration statement disclosures § 11 is meant to reach, since former directors have no input into registration statements.
Second, and as we explain infra in Part IV, the § 77k(a)(3) inquiry is limited to the face of the registration statement. That limitation is based on language in § 77k(a)(3) ("named in the registration statement as") that does not appear in § 16. See § 16(a)(1), 15 U.S.C. § 78p(a)(1) ("Every person who is directly or indirectly the beneficial owner of more than 10 percent of any class of any equity security. . . or who is a director or an officer of the issuer of such security, shall file the statements required by this subsection with the Commission." (emphasis added)). Section 16, unlike § 77k(a)(3), invites an inquiry into the actual circumstances of a purported director.
Once we accept that distinction, our holding accords with the release provisions Plaintiffs cite. The releases attempt to cover people with policymaking power and access to inside information, while excluding figureheads—without formalistic reliance on titles. Likewise, our interpretation of § 77k(a)(3) includes only persons who, on the face of the registration statement, exercise formal power similar to directors. If the registration statement here described Zou and Downs as having that kind of power, their "observer" title would not absolve them.
