Common use of Controlling Persons Clause in Contracts

Controlling Persons. Federal securities laws may impose joint and several liability on “control persons”, or persons in control of or who direct others within their corporation, whether or not such control or direction relates to the purchase and/or sale of that corporation’s securities. For example, Rule 10b-5 of the Exchange Act imposes liability on persons who control other persons who misrepresent or otherwise commit fraud in connection with the purchase or sale of securities. However, it is important to note that such laws generally do not make the controlling person absolutely liable for substantive violations by the persons controlled by them. In fact, under Section 15 of the Exchange Act, a controlling person can avoid liability by proving that “he had no knowledge of or reasonable grounds to believe in the existence of the facts by reason of which the liability of the controlled person is alleged to exist.”