Criminal liability for mis-statements in prospectus
📚 Law Minded summary
If a prospectus contains a statement that is untrue or misleading, or leaves out something that makes it misleading, this is the criminal consequence.
Every person who authorised the issue of that prospectus is liable to the punishment for fraud under section 447 — which can mean imprisonment as well as a fine.
There is one way out: a person escapes if they prove the statement was immaterial, or that they had reasonable grounds to believe it was true and did believe it, right up until the prospectus was issued.
statements in prospectus.—Where a prospectus, issued, circulated or distributed under this Chapter, includes any statement which is untrue or misleading in form or context in which it is included or where any inclusion or omission of any matter is likely to mislead, every person who authorises the issue of such prospectus shall be liable under section 447: Provided that nothing in this section shall apply to a person if he proves that such statement or omission was immaterial or that he had reasonable grounds to believe, and did up to the time of issue of the prospectus believe, that the statement was true or the inclusion or omission was necessary.
All sections in Chapter III — Prospectus and Allotment of Securities