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Securities Law

§ 6.07.06
Key point 6-07.06. Federal and state securities laws make board members personally liable for acts of fraud committed by an organization in connection with the offer or sale of securities. These laws apply to churches, and as a result church board members may be liable for fraudulent practices occurring in connection with the offer or sale of church securities.

Section 410(b) of the Uniform Securities Act (adopted in most states) imposes civil liability on every officer or director of an organization that (a) offers or sells unregistered, nonexempt securities; (b) uses unlicensed agents in the offer or sale of its securities (unless the agents are specifically exempted from registration under state law); or (c) offers or sells securities by means of any untrue statement of a material fact or any omission of a material fact. In recent years, a number of churches have violated some or all of these requirements. Such violations render each officer and director of the church potentially liable.

Section 410(b) does provide that an officer or director of an organization that sells securities in violation of any of the three provisions discussed above is not liable if he "sustains the burden of proof that he did not know, and in the exercise of reasonable care could not have known of the existence of the facts by reason of which the liability is alleged to exist."

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