Randall v. Loftsgaarden case brief

Randall v. Loftsgaarden case brief summary
478 U.S. 647 (1986)

CASE SYNOPSIS

Petitioners appealed a judgment of the United States Court of Appeals for the Eighth Circuit that provided that the recovery available to them under § 12(2) of the Securities Act of 1933, 15 U.S.C.S. § 771(2), or § 10(b) of the Securities Exchange Act of 1934, 15 U.S.C.S. § 78j(b), to rescind the fraudulent transaction or obtain rescissory damages had to be reduced by any tax benefits they received from the tax shelter investment.

CASE FACTS
Petitioners brought suit against respondent, alleging securities fraud and raising claims under § 12(2) of the Securities Act of 1933, 15 U.S.C.S. § 771(2), and § 10(b) of the Securities Exchange Act of 1934, 15 U.S.C.S. § 78j(b).

PROCEDURAL HISTORY
The district court found for petitioners and held that the remedy of rescission was proper under § 12(2). The court of appeals sustained respondent's liability, but reversed the rescissory award and remanded. On remand, the district court calculated petitioners' damages as the purchase price of a partnership plus simple interest, minus net tax benefits. Both petitioners and respondent appealed. The court of appeals held that tax benefits were a form of income received within the meaning of § 12(2) and recalculated and decreased petitioners' award. Petitioners appealed.

DISCUSSION

• The court held that § 12(2) did not authorize an offset of tax benefits received by petitioners against their rescissory recovery either as "income received" or as a return of "consideration."

CONCLUSION
The court reversed and remanded. The court held that the recovery available under the Securities Act of 1933 and the Securities Exchange Act of 1934 to rescind a fraudulent transaction or obtain rescissory damages should not be reduced by tax benefits petitioners received from a tax shelter investment.


Suggested Study Aids For Securities Regulation Law
Securities Regulation in a Nutshell, 10th (Nutshell Series)
Securities Regulation: Examples & Explanations, 5th Edition
Securities Regulations: The Essentials