Section 12(a)(1) of the Securities Act of 1933 imposes liability on sellers of securities who violate that Act's registration and prospectus delivery requirements. Because the statute refers to sellers, it seems unlikely that investors themselves might have liability under Section 12(a)(1). Things are not as they seem, however.
Samuels v. Lido Dao, 2024 WL 4815022 (N.D. Cal. Nov. 18, 2024), motion to certify appeal denied, 2025 WL 371797 (N.D. Cal. Feb. 3, 2025) involved a suit by an investor who bought cryptocurrency tokens on an exchange. The tokens were originally issued by an entity called Lido DAO. After losing money, the investor sued, alleging that the tokens were offered and sold without registration under the Securities Act. The defendants included four large institutional investors in Lido—Paradigm Operations, Andreessen Horowitz, Dragonfly Digital Management, and Robot Ventures. The plaintiff's theory was that Lido was a partnership and the institutional investors were liable under California law for the activities of the partnership—including for Lido's failure to register its crypto tokens as securities. U.S. District Judge Vince Chhabria concluded:
It's true that a partner cannot be directly liable for a violation of Section 12 simply by virtue of their being a partner in an entity that violates that provision (as they could be for a violation of Section 11). But the Act clearly defines “person” to include “a partnership.” 15 U.S.C. § 77b(a)(2). And under California law, general partners are jointly and severally liable for the obligations of the partnership. Cal. Corp. Code § 16306(a). So even though a partner cannot be directly liable for a partnership's violation of Section 12, the partnership can still be a co-obligor, under state law, for the partnership's liability.
He therefore denied all of the defendants' motions to dismiss, except Robot's. He granted Robot Venture's motion because the plaintiff failed to allege that Robot Ventures was a member of the Lido general partnership.
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