Section 11 Signatories Cannot Disclaim Strict Liability; Section 15 Control-Person Claims May Proceed on Plausible Power-to-Control Allegations

1. Introduction

In Glenmede Trust Co., N.A. v Infinity Q Capital Mgt. LLC (2026 NY Slip Op 02330 [1st Dept Apr. 16, 2026]), the Appellate Division, First Department, reviewed CPLR 3211 dismissals of federal Securities Act of 1933 claims arising from the collapse of a retail mutual fund that allegedly reported an inflated net asset value (NAV) due to manipulated pricing inputs.

Plaintiffs—investors who opted out of related class actions—sued, among others, the fund’s investment adviser, Infinity Q Capital Management LLC (“IQCM”), its CEO Leonard Potter, and Bonderman Family Limited Partnership, LP (“Bonderman LP”), a significant owner of IQCM. The central alleged misstatements appeared in the Mutual Fund’s SEC Form N-1A registration statement and prospectus materials (the “Registration Statement”), effective December 31, 2019.

Key issues on appeal were:

  • Section 11: Whether Potter could avoid strict “signer” liability under 15 USC § 77k by placing a disclaimer above his signature purporting to limit what he was signing.
  • Section 11 (vicarious/respondeat superior): Whether IQCM could face Section 11 liability based on Potter’s alleged agency.
  • Section 15: Whether plaintiffs sufficiently pled “control person” liability (15 USC § 77o) against Potter and Bonderman LP (and IQCM) predicated on a viable Section 11 claim.
  • Entity/control structure: Whether Potter or IQCM could be “control persons” of the Mutual Fund or the broader trust vehicle that legally housed it.

2. Summary of the Opinion

The First Department modified Supreme Court’s orders and held:

  • Section 11 reinstated against Potter: a signatory cannot unilaterally limit Section 11 “signer” liability via a disclaimer.
  • Section 11 reinstated against IQCM on a respondeat superior theory: plaintiffs plausibly alleged Potter acted as IQCM’s agent in signing.
  • Section 15 reinstated against Potter and Bonderman LP as control persons of IQCM (to the extent alleged).
  • Section 15 dismissed insofar as plaintiffs claimed Potter or IQCM controlled the Mutual Fund or the Trust: the Mutual Fund was not a separate legal entity and the Trust was controlled by its trustees.

3. Analysis

3.1. Precedents Cited

Statutory interpretation / plain meaning

  • Matter of Walsh v New York State Comptroller, 34 NY3d 520, 524 (2019), quoting Matter of Lemma v Nassau County Police Officer Indem. Bd., 31 NY3d 523, 528 (2018): The court invoked these New York Court of Appeals cases to reinforce that unambiguous statutory language must be enforced according to its plain meaning. This supported the core move of treating Section 11’s “every person who signed the registration statement” as dispositive, leaving no room for private “carve-outs.”

Federal Securities Act authority on scope of Section 11 liability

  • Obasi Inv., Ltd. v Tibet Pharms., Inc., 931 F3d 179 (3d Cir 2019): Though addressing § 77k(a)(3) (persons named as directors), the Third Circuit’s textual comparison to § 77k(a)(4) (experts) was used to show that Congress knew how to limit liability to discrete portions of a registration statement when it wanted to—underscoring that signers under § 77k(a)(1) cannot narrow liability by adding limiting language.
  • Wang v Cloopen Group Holding Ltd., 661 F Supp 3d 208, 238 (SD NY 2023): Closely analogous: the SDNY rejected an argument that signing “on behalf of” an employer negates personal signer liability under Section 11. The First Department relied on this logic to reject Potter’s attempt to sign with a limiting disclaimer.

Agency and vicarious liability

  • Riviello v Waldron, 47 NY2d 297, 302-303 (1979): Cited for the proposition that agency is fact-intensive; at the pleading stage, allegations such as Potter being IQCM’s CEO and IQCM serving as investment adviser supported a plausible inference that Potter acted as IQCM’s agent—permitting a respondeat superior path to Section 11 liability against IQCM.

Section 15 control-person pleading standards

  • In re Flag Telecom Holdings, Ltd. Sec. Litig., 352 F Supp 2d 429, 457-458 (SD NY 2005): Used for the basic two-part test (primary violation + control) and the practical conception of “control” as the ability to direct actions of those issuing/selling securities, not mere persuasion.
  • Acacia Natl. Life Ins. Co. v Kay Jewelers, 203 AD2d 40, 46 (1st Dept 1994), quoting Caruso v Metex Corp., 1993 WL 305945, *3 (ED NY, July 1, 1993, No. CV 89-0571): These anchor the First Department’s “relatively lenient” pleading approach: plaintiffs need only allege the power or potential power to influence/control, and “controlling person” is an intensely factual inquiry.

Control-person indicia (ownership/founder involvement/appointments)

  • In re Complete Mgt. Inc. Sec. Litig., 153 F Supp 2d 314, 332 (SD NY 2001): Cited to support that founder-level involvement in creating entities can support an inference of control.
  • In re Spiegel, Inc. Sec. Litig., 382 F Supp 2d 989, 1022 (ND Ill 2004): Cited for the idea that appointing trusted, loyal personnel into key roles can be a control indicium.
  • In re Smith Barney Transfer Agent Litig., 884 F Supp 2d 152, 167 (SD NY 2012): Cited comparatively regarding allegations sufficient to plead control based on executive role and involvement.

Pleading posture under CPLR 3211

  • Edwards v Nicolai, 153 AD3d 440, 440-441 (1st Dept 2017): Cited for the rule that on a CPLR 3211 dismissal motion, facts are taken from complaint allegations and documents incorporated by reference. This frames why agency/control inferences were drawn in plaintiffs’ favor at this stage.

3.2. Legal Reasoning

(A) Section 11 signer liability is strict and cannot be limited by disclaimer

The court’s central doctrinal contribution is its clear holding that there is no mechanism under the 1933 Act for a signatory to narrow Section 11 exposure via disclaimer. The reasoning is textual and structural:

  • Section 11 imposes liability on “every person who signed the registration statement” (15 USC § 77k). Potter signed; therefore he falls within § 77k(a)(1).
  • Congress expressly provided for limited, portion-specific responsibility in § 77k(a)(4) (experts) and did not do so for signers—so courts should not invent such a limitation. The court used Obasi Inv., Ltd. v Tibet Pharms., Inc. to highlight this structural contrast.
  • The presence or absence of “pursuant to the requirements of the Securities Act” language near signatures did not matter; liability turns on the fact of signing, not on whether the signer was required to sign under § 77f(a).

As a result, Supreme Court erred by treating Potter’s disclaimer as dispositive of Section 11 liability at the pleading stage (or at all).

(B) Section 11 claim against IQCM via agency/respondeat superior is plausibly pled

Having revived Potter’s Section 11 exposure, the court also held plaintiffs sufficiently alleged that Potter was acting as IQCM’s agent when signing, enabling a respondeat superior claim against IQCM. The court emphasized that agency is fact-intensive (Riviello v Waldron) and found it reasonable to infer agency from: (i) IQCM’s role as the Mutual Fund’s investment adviser, and (ii) Potter’s status as IQCM’s CEO.

(C) Section 15 control-person liability: viable as to control of IQCM, not as to control of the Trust/Mutual Fund

The court reaffirmed that a Section 15 claim requires (1) a primary violation and (2) control over the primary violator (In re Flag Telecom Holdings, Ltd. Sec. Litig.). With Section 11 reinstated, the “primary violation” predicate was no longer missing.

Applying the First Department’s lenient pleading approach (Acacia Natl. Life Ins. Co. v Kay Jewelers), the court held:

  • Bonderman LP plausibly controlled IQCM: plaintiffs alleged a substantial ownership stake (25%+) plus founder involvement and the placement of trusted associates to run the enterprise (supported by In re Complete Mgt. Inc. Sec. Litig. and In re Spiegel, Inc. Sec. Litig.).
  • Potter plausibly controlled IQCM: as CEO and the signer, he was plausibly alleged to have the power/potential power to direct relevant conduct (cf. In re Smith Barney Transfer Agent Litig.).
  • Potter and IQCM did not plausibly control the Mutual Fund or the Trust: the Mutual Fund was not a separate legal entity but part of the Trust, and the Trust was controlled by its trustees. That entity structure defeated control-person theories aimed at the Mutual Fund/Trust rather than at IQCM.

3.3. Impact

  • Bright-line rule for signers in New York practice: This decision makes it substantially harder for executives or affiliates to defeat Section 11 claims at the pleading stage by arguing that signature-page qualifiers narrow statutory liability. For New York litigants bringing federal Securities Act claims in state court, the case is a direct answer to a recurring defense tactic.
  • Drafting and governance consequences: Issuers and fund complexes may respond by tightening signature practices (who signs, in what capacity, with what internal approvals), rather than relying on external disclaimers that the court deems legally ineffective.
  • Control-person pleading remains plaintiff-friendly (for the right target): Consistent with Acacia Natl. Life Ins. Co. v Kay Jewelers, the decision confirms that alleging ownership plus founder-level influence/appointments can be enough to plead control—yet it also underscores that plaintiffs must identify the proper “controlled person” and respect formal entity control structures (e.g., trustees controlling a statutory trust).
  • Expanded exposure for advisers/management entities: By allowing respondeat superior in a Section 11 context on plausible agency allegations, investment advisers and management companies face increased risk where senior officers sign registration materials tied to advisory business.

4. Complex Concepts Simplified

  • Section 11 (15 USC § 77k): A Securities Act claim for material misstatements/omissions in a registration statement. For certain defendants—especially signers—liability is often described as “strict,” meaning the plaintiff need not prove intent to deceive.
  • Registration Statement (Form N-1A): The core SEC filing used by mutual funds to register shares and disclose strategy, risks, valuation, fees, and operations.
  • NAV (Net Asset Value): The per-share value of a mutual fund, generally (assets – liabilities) / shares. If asset values are inflated, NAV can be overstated, misleading investors about what they own.
  • Derivatives/swaps and pricing services (BVAL): Many swaps do not trade on transparent exchanges; valuation models and inputs matter. Allegedly manipulating those inputs can distort reported asset values.
  • Respondeat superior / agency: A doctrine that can make an organization liable for actions of its agents/employees acting within the scope of their role. Here, if the CEO signed as the company’s agent, the company may share liability.
  • Section 15 (15 USC § 77o) “control person” liability: A secondary liability theory: if A controls B, and B is liable under Section 11 (or 12), A can also be liable. “Control” focuses on practical power to direct, not mere influence.
  • Multiple Series Trust (MST): A structure where multiple mutual funds exist as “series” within a single trust. The series may be distinct portfolios, but the trust is the legal entity—often with trustees holding formal control.
  • CPLR 3211 dismissal motion: A New York motion to dismiss at the pleading stage. Courts assume well-pled facts are true and draw reasonable inferences for the plaintiff.

5. Conclusion

Glenmede Trust Co., N.A. v Infinity Q Capital Mgt. LLC establishes a clear, practical rule for Securities Act litigation in New York courts: once a person signs a registration statement, Section 11 signer liability attaches by statute and cannot be narrowed by a unilateral disclaimer. The decision also reinforces that, at the pleading stage, Section 15 control-person claims may proceed on plausible allegations of power to control a primary violator, while rejecting overbroad control theories that ignore the legal reality of trust governance and non-entity “series” structures.