Understanding What “Control Person” Means in Securities Law

What is a Control Person?

A control person is an entity or individual who has the power to influence, direct, or control the activities of a publicly traded company. Control persons can be directors, officers, shareholders, affiliates, or any other person with authority over the public company’s management and operations. They may also have significant investments in the company. Control persons are subject to greater legal liability under securities laws depending on their role and involvement in the business.

What Are the Requirements to be Deemed a Control Person?

To be classified as a control person, there must be some evidence of direct discretion or authority over the controlled individual or entity. This may include shareholders who hold the majority of the voting power or directors who are actually involved in decision-making. Officers, directors, and supervisors of brokerage firms and other financial entities can be deemed control persons.

Generally, a control person will have some particular responsibility, either explicit or implicit, to act in good faith in conducting the issuer’s business. The court is focused on whether they had any real, effective decision-making power in determining how management directed the affairs of the company.

How Do Control Persons Affect the Liability of the Company?

Control persons are typically liable for their own actions, as well as those of the company under certain circumstances. If a business fails to exercise reasonable care in controlling its activities, and inflicts injury on customers or other third parties, its control persons may be held liable for not properly managing the company’s affairs. Additionally, failure to fulfill certain obligations mandated by securities law can open up the control person to liability. This could include violations such as failing to maintain adequate disclosure of necessary information in SEC filings.

Do Control Persons Have Other Obligations?

Yes, control persons have additional obligations beyond the risk of liability for the company’s actions. They must also take part in good faith efforts to comply with securities laws and regulations. This includes actively monitoring activities, confirming that appropriate policies are in place and enforced, and ensuring ongoing transparency in a company’s operations. On top of this, if a control person has firsthand knowledge of possible violations or illegal behavior, they must report it immediately to both internal and external parties as required by law.

Where do I Go for More Information?

Control persons who wish to learn more about their legal obligations should visit The Securities Law Home Page (www.seclaw.com) which maintains a huge collection of articles and commentary on the securities laws. The site also maintains links to all of the United States securities laws. Additionally, you can refer to state securities regulators and the Securities Exchange Commission (SEC) website for further information.

You can also contact The Securities Lawyer, at 212-509-6544, or www.securitieslawyer.us. Finally, you can contact the SEC, FINRA, or your state regulator.

Securities Attorney at Sallah Astarita & Cox | 212-509-6544 | mja@sallahlaw.com | Website | + posts

Mark Astarita is a nationally recognized securities attorney, who represents investors, financial professionals and firms in securities litigation, arbitration and regulatory matters, including SEC and FINRA investigations and enforcement proceedings.

He is a partner in the national securities law firm Sallah Astarita & Cox, LLC, and the founder of The Securities Law Home Page - SECLaw.com, which was one of the first legal topic sites on the Internet. It went online in 1995 and is updated daily with news, commentary and securities law related links.

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