A real estate offering can involve far more people than the sponsor who signs the subscription documents. Brokers, advisers, employees, lawyers, accountants, and others may help prepare materials or move money. If the offering violates the Texas Securities Act, can one of those participants be liable even without controlling the company or selling an investment?
Sometimes. Texas law recognizes liability for a person who materially aids a securities violation with the required state of mind. But involvement in a deal, a professional title, or a failed investment does not establish that liability by itself.
What the statute requires
Texas Government Code section 4008.055(c) addresses a person who directly or indirectly materially aids a seller, buyer, or issuer, with intent to deceive or defraud or with reckless disregard for the truth or the law. The provision ties liability to specified underlying violations and can impose joint and several liability to the same extent as the seller, buyer, or issuer.
That makes the underlying transaction essential. An investor must identify the relevant securities violation and connect the alleged assistance to it. A business failure or a missed distribution alone does not establish securities fraud, and providing ordinary services does not automatically make someone responsible for another person’s misconduct.
What did the participant know?
The Texas Supreme Court addressed the required mental state in Sterling Trust Co. v. Adderley, 168 S.W.3d 835, 841–42 (Tex. 2005). The court held that the statutory recklessness standard requires subjective awareness of the primary violator’s improper activity. The inquiry is whether the alleged aider was aware of a risk that the assistance would facilitate improper conduct, not simply whether someone later concludes the person should have been more suspicious.
That distinction can decide a case. A person who receives a warning that a specific statement to investors is false and helps distribute it anyway presents a different record from a professional who works with information that appears accurate and has no awareness of wrongdoing. Those examples illustrate the issue; neither replaces a review of the evidence and applicable law.
Material aid requires a close look at the work
Ask what the participant actually did. Did the person prepare or approve the disputed offering language? Supply financial figures? Communicate with investors? Arrange transfers? What authority did the person have, and how did the work relate to the alleged violation?
The same action can look different in context. Forwarding an approved document, revising a representation after receiving contradictory information, and independently directing how investor funds are used may present very different questions. The statute requires material aid and the specified mental state. Neither should be assumed from a job description.
Evidence that matters to both sides
For investors, a timeline connecting offering statements, internal reports, communications, and the participant’s conduct can expose gaps that an organizational chart misses. Drafts and version histories can help identify who supplied and changed information. Bank records may show who authorized transactions, although a signature alone does not establish knowledge of a violation.
For a person defending a claim, preserve the full record, including instructions received, materials reviewed, questions raised, responses, and the limits of the assignment. A careful record may show what information was available and what the person understood at the time. Avoid treating a later investment loss as proof that everyone involved knew the deal was improper.
Different from control-person liability
Control-person liability and aider liability are separate theories in the same statute. One focuses on control and has its own statutory defense; the other requires material aid and the specified mental state. Someone may be accused under either theory, both, or neither. For the control question, see Who Really Controlled the Deal?
Deadlines depend on the underlying claim and circumstances. Investors and participants should evaluate the transaction promptly rather than assuming that settlement discussions or an internal investigation stop the clock.
Related reading: Can a Texas Syndication Sponsor Be Personally Liable? and Real Estate Syndication and Investor Litigation.
Matthew M. Clarke represents investors, sponsors, businesses, and individuals in securities, syndication, and commercial disputes. Contact Matthew Clarke to discuss a dispute.
Also in this series: A Texas Securities Rescission Offer.
This article provides general information, not legal advice. Reading it does not create an attorney-client relationship. Past results do not guarantee a similar outcome.