Recent Applications Of Section 11 Of The Securities Act Of 1933 By The First Department

Section 11 of the Securities Act of 1933 creates a private right of action for purchasers of securities issued under a registration statement that, at the time it becomes effective, contains a material misstatement or omission. Section 11 imposes liability on a broad range of potential defendants, including issuers, signatories, directors, experts that prepared or certified part of the registration statement, and underwriters, and persons who control a company can likewise face liability under Section 15 of the Securities Act. Section 11 claims are sometimes described as imposing close to “strict liability” because they do not generally require plaintiffs to prove scienter or reliance and thus the motion to dismiss phase remains critical for defendants.

This article explores two decisions from the Supreme Court of New York Appellate Division, First Department, issued in April 2026, Glenmede Trust Co., N.A. v. Infinity Q Capital Management, LLC, 248 A.D.3d 562 (1st Dep’t 2026), and Matter of dLocal Securities Litigation, 248 A.D.3d 576 (1st Dep’t 2026), touching upon the scope of Section 11 liability at the motion to dismiss phase and the implications of those decisions.

Glenmede turned upon whether a signatory to a registration statement can limit his or her Section 11 liability through a disclaimer. Defendant IQCM managed a publicly offered mutual fund that invested in derivatives and swaps, which it valued using a specific tool.

Ultimately, the fund collapsed in February 2021 with approximately $500 million less in assets than reported, and the chief investment officer was criminally prosecuted. Plaintiffs subsequently alleged that the chief investment officer manipulated the inputs to inflate the values of the fund’s assets and its reported net asset value in violation of the federal securities laws.

Although IQCM’s chief executive officer signed the fund’s registration statement, a disclaimer above his signature purported to limit his certification to information concerning a subsidiary fund rather than the publicly offered mutual fund itself. Thus, the central question presented by the motion to dismiss was whether this disclaimer cabining the scope of his review could absolve the chief executive officer from Section 11 liability for the registration statement as a whole.

The Supreme Court of the State of New York, Commercial Division believed the answer was yes and held that this disclaimer language foreclosed the CEO’s liability under Section 11. The First Department, however, disagreed with that reasoning and reversed and reinstated the claim.

The First Department’s analysis and ultimate conclusion hinged on the text of the statute itself. It reasoned that while Section 11(a)(1) extends to every person who signs a registration statement and provides no mechanism to limit a signatory’s responsibility to selected portions, another provision within the same section, Section 11(a)(4), expressly limits an expert’s potential liability to the portion that the expert prepared or certified.

Accordingly, the First Department concluded that Congress knew how to limit the scope of a certification when it so chose, and liability under Section 11(a)(1) could not be limited through a unilateral disclaimer. Glenmede, 248 A.D.3d at 565-67.

Thus, Glenmede serves as a warning that, at least in the First Department, any signatory to a registration statement may face responsibility for the contents and statements within the full registration statement.

Simply including a disclaimer may be unlikely to effectively foreclose responsibility unless Section 11(a)(4) applies. Of note, however, is that the First Department appears to be the only department within the Appellate Division to have considered this specific fact pattern such that other courts within New York as well as federal courts may reach a different conclusion.

April 16 was a busy day for the First Department as it also issued Matter of dLocal Securities Litigation, 248 A.D.3d 576 (1st Dep’t 2026), which affirmed dismissal of a Section 11 claim. In dLocal, plaintiffs challenged disclosures in a payment technology company’s initial public offering prospectus under Section 11. Plaintiffs alleged that the prospectus should have disclosed a declining “take rate,” which is the percentage of each transaction that dLocal retains as revenue.

But defendants argued in their motion to dismiss that the prospectus disclosed that dLocal was transitioning from higher-margin cross-border payments to lower-margin local-to-local payments, while total payment volume, revenue, and gross profits continued to rise. What is more, the additional figures cited in the complaint showed only a few months of changing take rates, and plaintiffs did not challenge the accuracy of any disclosed figures.

The Commercial Division agreed with defendants and granted the motion to dismiss the complaint, finding that plaintiffs failed to adequately plead that defendants had actual knowledge of the take rate decline. In this instance, the First Department affirmed. It held that plaintiffs failed to satisfy the actual knowledge requirement under both Item 105 (risk factors) and Item 303 (known trends) of Regulation S-K.

With respect to Item 105, the disclosed numbers showed continued increases in total payment volume, revenue, and gross profits, and additional figures alleged in the complaint showed the same growth before and after the company went public.

With respect to Item 303, the prospectus disclosed the shift from cross-border to local- to-local payments and their different revenue characteristics; limited data showing only a few months of changing take rates did not constitute a known material trend at the time of the offering. The court also rejected plaintiffs’ argument that post-IPO earnings calls showed management considered take rates material, instead holding that the actual statements did not support that allegation.

Even if a take rate decline was a known trend, consistent increases in payment volume collections, revenue, and gross profits showed that it would not significantly alter the total mix of information available to investors. dLocal, 248 A.D.3d at 577-78.

dLocal confirms that, even though plaintiffs need not plead scienter as an element of a Section 11 claim, actual knowledge remains an important pleading hurdle to allege an omissions-based or Item 303 claim. In such situations, a plaintiff must plead facts from which actual knowledge of a risk or trend can be reasonably inferred, and limited amounts of data may not be sufficient to plead an actionable claim.

Read together, dLocal and Glenmede serve as reminders that Section 11 liability remains highly dependent on the specific statutory provision invoked and the details of the allegations supporting the particular claim. With respect to any alleged misstatements or omissions, a plaintiff must still plead particularized facts supporting actual knowledge of a material risk or trend and materiality as part of the total mix of information available to investors.

And on the signatory liability side, at least one court has now held that the statute means what it says: if you signed the registration statement, you may be liable for its contents, full stop.

Originally published by NEW YORK LAW JOURNAL