The authors explain why tracing securities through secondary market transactions is not feasible.
When securities are offered and sold to the public through a registered offering, Section 11 of the Securities Act allows purchasers of “such securities” to bring a private action if there are material misstatements in the registration statement. If issues of the same security have been sold pursuant to different registration statements or through unregistered channels, courts have required Section 11 plaintiffs to prove that they have standing by demonstrating that they purchased securities that can be “traced” to the registration statement at issue.
This requirement raises the question of whether investors who purchased stock in secondary market transactions might be able to trace their shares back over time to determine whether they purchased shares that were offered and sold pursuant to a specific registration statement, as opposed to shares in the same class offered and sold through other channels. Given the realities of how securities are held and traded in modern markets, courts have recognized that securities generally cannot be traced through secondary market transactions.
This article, coauthored by Stewart Mayhew and Simona Mola of Cornerstone Research, explains why tracing securities through secondary market transactions is not feasible and why accounting methods such as last-in-first-out (LIFO) or first-in-first-out (FIFO) cannot solve the problem.
This article was originally published by Westlaw in September 2025.
Washington 
