In 1990, California enacted the California Commodity Law, Stats. 1990, Ch. 969, Corp. Code § 29500 et seq. Although this law hasn’t attracted the attention of legal writers, it has some very sharp teeth, as illustrated by the recent case of People v. Martinez, 2017 Cal. App. LEXIS 314 (Cal. Ct. App. 2017). The CCL, among other things, makes it unlawful for any person, directly or indirectly, in connection with the purchase or sale of, the offer to sell, the offer to purchase, the offer to enter into, or the entry into a commodity, commodity contract, or commodity option:
To willfully make any false report, enter any false record, make any untrue statement of a material fact, or omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading.
Cal. Corp. Code § 29536(b).
In Martinez, a jury found that the defendants had made false statements in connection with money management accounts. On appeal, the defendants argued that their convictions should be reversed because the statute is limited to misrepresentations in contracts to purchase commodities and does not extent to contracts between investors and money managers. The Court of Appeal, in an opinion by Justice Terry B. O’Rourke, disagreed, concluding that Section 29536 “encompasses any investment account, agreement or contract that is used for the purchase or sale of commodities”.
The court’s holding should be of obvious concern to investment advisers who may be surprised to find that they may be criminally liable under the CCL when clients are presented with the opportunity to trade commodities, such as foreign exchange, or forex. However, the Court of Appeal’s opinion is in error in one respect – the name of the law is the California Commodity Law of 1990, not the California Commodities Law of 1990. Cal. Corp. Code § 29500 (“This division shall be known and may be cited as the ‘California Commodity Law of 1990.'”).
Yahoo, Jonathan Swift and Insider Trading
Yesterday, Yahoo! Inc. filed this preliminary proxy statement with respect to a special meeting of stockholders to consider an vote on a proposal to approve the sale of Yahoo’s operating business to Verizon Communications Inc. As a California lawyer, I took particular interest in the disclosure that a stockholder had filed a derivative and class action lawsuit in California Superior Court asserting, among other things, claims of insider trading, purportedly on behalf of Yahoo, against certain defendants under California Corporations Code Sections 25402 and 25403. Expectedly, securities lawyers tend to focus on the federal law of insider trading, but they should not lose sight of the fact that California has its own ban. For more on California’s statute, see my article, California’s Unique Approach to Insider Trading Regulation, 17 Insights 21 (July 2003) and this post from 2012.
I don’t know whether the founders of Yahoo! had Jonathan Swift in mind when they named the company, but he popularized, if not coined, the word in his book Gulliver’s Travels. Mr. Swift’s book also gave us the words lilliputian and brobdingnagian.