Sales prospectuses are intended to enable an informed investment decision. If essential information is incorrect or incomplete, the person responsible for the prospectus may be held liable.
Anyone who offers securities, investments or fund shares to the public must often publish a prospectus. This should contain all information that is essential for assessing the investment - in particular regarding opportunities, risks, costs and the people involved. The prospectus is often the central source of information for investors.
If a prospectus turns out to be incorrect, the question arises as to who is responsible for it. Prospectus liability is spread across several laws and is supplemented by principles of case law. This post outlines the basic structure.
Legal bases at a glance
Which liability standard is relevant depends on the type of investment product. The content requirements for securities prospectuses essentially arise from the European Prospectus Regulation; Liability is regulated by national law.
- Securities such as shares or bonds: Liability according to Sections 9 ff. of the Securities Prospectus Act (WpPG).
- Investments, such as certain company investments, subordinated loans or profit participation rights: Liability in accordance with Sections 20 ff. of the Asset Investment Act (VermAnlG).
- Shares in investment funds: Liability according to Section 306 of the Capital Investment Code (KAGB).
- In addition: the civil law prospectus liability developed by case law, which is based on the use of trust.
When is a prospectus incorrect?
The starting point for legal liability is information that is essential for the assessment of the system and is incorrect or incomplete. A statement is incorrect if it does not correspond to the facts; Forecasts and value judgments must also be based on a sufficient factual basis and be commercially justifiable. A prospectus is incomplete if circumstances that are important for the investment decision are missing.
According to case law, it is not just individual sentences that are important, but rather the overall picture that the prospectus conveys. Even formally accurate information can create an inaccurate impression if risks are trivialized or presented in a hidden place. Typical points of contention concern, for example, the presentation of costs and remuneration, personnel and economic relationships or the description of loss risks.
Who is liable – and for what?
Statutory prospectus liability is directed against those who have assumed responsibility for the prospectus and against those who issued the prospectus. These are typically the issuer and, if applicable, accompanying institutions or providers. Liability requires fault; those responsible can exonerate themselves if they prove that they were not aware of the incorrectness or incompleteness and that this ignorance was not due to gross negligence.
The legal consequence is essentially the reversal of the purchase: Investors can demand that the investment be taken over against reimbursement of the purchase price - within the legally determined limits - and the usual acquisition costs. If the system has already been sold, compensation for the difference may be considered. A claim is excluded, among other things, if the error in the prospectus was known at the time of purchase or if the investment was not purchased based on the prospectus.
Deadlines and enforcement
The special legal prospectus liability only covers acquisitions within a legally specified period of time after the public offer or introduction of the securities. In addition, there is the statute of limitations, which can be based on different rules depending on the basis of the claim. The regular limitation period of Sections 195 and 199 of the German Civil Code (BGB) applies to many claims, the start of which depends on knowledge of the circumstances giving rise to the claim and which is limited by maximum periods that are independent of knowledge.
Conclusion
Prospectus liability is intended to ensure that investment decisions can be made on an accurate and complete basis of information. Whether a brochure is incorrect, who is responsible for it and whether claims are still enforceable depends on the respective product, the time of purchase and the content of the documents. A reliable assessment therefore regularly requires a careful evaluation of the prospectus and the acquisition circumstances.
Frequently asked questions
No. Losses are part of the general investment risk and do not in themselves constitute a claim. Liability for a prospectus only comes into consideration if essential information in the prospectus was incorrect or incomplete and the other legal requirements are met.
This does not rule out claims from the outset. In the case of prospectus liability under special law, it is generally the responsibility of the opposing party to demonstrate that the investment was not acquired on the basis of the prospectus. How this is to be assessed in a specific case depends on the circumstances of the acquisition.
Prospectus liability is linked to errors in the prospectus and is directed against those responsible for the prospectus. Advice liability, on the other hand, is based on breaches of duty in the personal advisory relationship, such as a recommendation that is not appropriate for investors or investments. Both claims can exist independently of one another.
