Viterbi v. Wasserman: California Securities Law Requires Privity of Contract for Remedy of Rescission

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In order for a purchaser of securities to seek the remedy of rescission under California securities laws, she must be in privity of contract with the defendant, a conclusion supported by several cases interpreting federal securities statutes. This was explained in the published decision Viterbi v. Wasserman, (2011) 191 Cal.App.4th 927. The plaintiff Viterbi was a sophisticated investor. Before purchasing the securities at issue, she read a Private Placement Memorandum which detailed the investment risks. Viterbi learned of the opportunity through defendant Wasserman (no relation to the author of this post), a former employee of Viterbi whom Viterbi hired to work as an analyst on Viterbi’s biotech investments.

Wasserman was an officer, director and member of the advisory board of the company that issued the disputed securities. Viterbi claimed that Wasserman did not disclose a certain contract the company had entered into which Viterbi claimed made the securities worthless. Viterbi still owned the securities when she filed suit. She sought, inter alia, rescission against Wasserman under California Corporations Code Section 25504, which provides for control person liability for persons who control the seller of securities. She also sought rescission under Section 25504.1, which provides for secondary liability for persons who assist sellers in violation of the securities laws, that is, aider and abettor liability.

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