underwriters, securities, S.E.C.


While there is considerable scholarship on the due diligence defense of lead underwriters in defective corporate securities offerings, there is surprisingly little analysis of the due diligence defense of non-managing underwriters. This article challenges the common perception that lead and non-managing underwriters necessarily “sink or swim” together for purposes of due diligence. An analysis of the statutory structure of Section 11 of the Securities Act of 1933 reveals that non-managing underwriters are not inextricably tethered to the lead. Rather, non-managing underwriters who actively question the lead’s due diligence investigation should be able to meet their own affirmative defense even when the lead ultimately fails to meet its burden. Moreover, despite protestations from some in the investment banking community, it is also clear that to succeed in their separate affirmative defense, non-managing underwriters cannot simply be passive participants. To meet their separate defense, they must actively supervise the lead’s investigation of the financial health of the corporate issuer. Finally, this article addresses some of the practical issues involved in non-managing underwriters monitoring the lead underwriter’s investigation.



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