5.9 Concluding remarks

The Securities Prospectus Act and the Stock Exchange Act require issuers seeking listing on a German regulated market or offering their securities to the public to publish a prospectus. The prospectus must provide accurate information to the investing public such that they can base their investment decision on reliable information.

Investors claiming damages for the losses incurred as a result of false or misleading information in a prospectus can claim on the basis of section 44 of the Stock Exchange Act. This action is available to investors that acquired their securities on a German regulated market. In that case, the investor cannot claim on the basis of private law (proper) prospectus liability in the narrow sense.

Sections 44 and 45 of the Stock Exchange Act contain two presumptions with respect to causation. Liability constituting causation requires that the securities were actually acquired on the basis of the prospectus, i.e. the false or misleading information must have induced the investor to invest in the issuer's securities. In normal circumstances, it is not very likely that the investor is able to provide evidence that he actually read the prospectus and (exclusively) made his investment decision on the basis of the information in the prospectus. For that reason, even before the enactment of the provisions 44 and 45 in the Stock Exchange Act, German courts made use of the concept of investment market sentiment to alleviate the claimant's burden of proof. When professional investors and financial analysts base their investment decision, or their investment advice respectively, on the information contained in the prospectus, it is assumed that the market sentiment thus created induces non-professional investors to invest in the issuer's securities.

The second presumption, actually a reversal of the burden of proof, relates to liability completing causation. It is assumed that the fall in the securities market price after the revelation of the misleading nature of the information is the result of the revelation: the facts about which false or incomplete information were provided in the prospectus contributed to the fall in the securities market price.

The following persons can be held liable for the misinformation in the prospectus: those assuming responsibility for the prospectus and those initiating the issue of the prospectus. The issuing company, the lead manager and/or the other sponsoring banks assume responsibility for the prospectus. The latter may avoid liability if their actual involvement in the preparation of the prospectus is limited. The directors of the issuing company can be held liable if they have a personal financial interest in the preparation of the prospectus. For example, when they sell the securities they hold in the company.

Persons who initiate (Veranlasser) the issue of the prospectus are liable even though there is no externally observable involvement in the composition of the prospectus. Persons qualify as initiator if they, by their professional knowledge and experience, guarantee the correctness of the information in the prospectus and by their involvement in the preparation, represent themselves to outsiders as responsible for the prospectus. Therefore, accountants or auditors who made due diligence enquiries with respect to the contents of the entire prospectus may be held liable for the prospectus if they breached their duty of care in the enquiries. They cannot be held liable for their audit statements in the past annual accounts that are included in the prospectus.

On the basis of section 44 of the Stock Exchange Act, the investor can claim, within six months from the admission to listing, restitution of the purchase price of the securities. If the investor no longer holds the securities, he will receive the difference between the purchase price and the sales price of the securities. Investors cannot claim for the difference between the sales price at the IPO and the theoretical market price that would have existed if the market was provided with accurate and complete information in the prospectus.