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CALIFORNIA CORPORATE & SECURITIES LAW

California’s Corporations Code And Securities Rules Are Rife With Errors

Spring is the traditional season for cleaning and California’s Corporations Code and securities rules are desperately in need of some tidying up.  In a very quick and incomplete review of the Code and the Commissioner’s rules, I found the following:

California Corporations Code

  • Sections 5260, 9260 and 23000 refer to the “Internal Revenue Code of 1954” which is now the Internal Revenue Code of 1986.
  • Section 25100(i) refers to the no longer existing Interstate Commerce Commission and the Public Utilities Holding Company Act.  See Interstate Commerce Commission Termination Act, P.L. 104-88 and Energy Policy Act of 2005, P.L. 109-58.
  • Section 25100(s)(5) refers to “Section 4(2)” of the Securities Act of 1933 (“Securities Act”).  This section was re-designated as Section 4(a)(2) pursuant by Section 201(c) of the Jumpstart Our Business Startups Act, Pub. L. No. 112-106, sec. 201(c), 126 Stat. 306, 314 (Apr. 5, 2012) (“JOBS Act”).  See SEC Rel. No. 33-9414 [78 FR 44730] (July 10, 2013).
  • Section 25100(t)(1) refers to “industrial loan company”.  This should be updated to “industrial bank”.  See 2000 Cal. Stat. ch. 1015 (S.B. 2148 (Polanco)).
  • Section 25101.1 refers to under “Section 4(1) or 4(3)” of the Securities Act.  These sections were re-designated Section 4(a)(1) and 4(a)(3), respectively, pursuant to Section 201 of the JOBS Act.
  • Section 25248(f) should refer to the Department of Business Oversight rather than the Department of Corporations.  See Governor’s Reorganization Plan No. 2 of 2012.
  • Section 25302(b)(2) should refer to the Commissioner of Business Oversight rather than the Commissioner of Financial Institutions.
  • Section 25302(b)(4) refers to the Office of Thrift Supervision.  Section 312 of the Dodd Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, transferred all of the Office of Thrift Supervision’s functions to the office of the Comptroller of the Currency.

Commissioner of Business Oversight Rules

  • Rule 260.102.1(a)(3) continues to use the term “husband and wife” even though Section 25102(f) was amended to change “husband and wife” to “spouse”, a term that includes a “registered domestic partner” as required by Family Code § 12.2.
  • Rule 260.102.13(f) refers to the “Investment Advisors Act of 1940” which should be “Investment Advisers Act of 1940”.
  • Rule 260.102.14(a)(1) refers to “section 4(6)” of the Securities Act.  This section was re-designated Section 4(a)(6) pursuant to Section 201 of the JOBS Act.
  • Rule 260.103.4 refers to the “Pink Sheets LLC” which has been renamed.  The OTC Markets Group LLC operates three different markets: OTCQX® Best Market, OTCQB® Venture Market, and Pink® Open Market.
  • Rule 260.105.7 refers to the “Pink Sheets LLC” which has been renamed.  The OTC Markets Group LLC operates three different markets: OTCQX® Best Market, OTCQB® Venture Market, and Pink® Open Market.
  • Rule 260.105.16 should refer to the Commissioner of Business Oversight rather than the Commissioner of Corporations and the Superintendent of Banks.
  • Rule 260.105.16 contains an outdated reference to Chapter 14 of Banking Law.
  • Rule 260.105.29 incorrectly refers to the “Securities Exchange Act of 1933”.  The correct reference should be the Securities Act of 1933.
  • Rule 260.105.35 refers to the “Pacific Stock Exchange”, which was sold and is now owned by the New York Stock Exchange and operates under the name “NYSE Arca”.
  • Rule 260.105.35 refers to the “American Stock Exchange”, which is now the “NYSE MKT LLC”.
  • Rule 260.105.35 refers to the “Philadelphia Stock Exchange”.  Its name was changed to the “NASDAQ OMX PHLX, Inc.  see SEC Release No. 34-58380 (Aug. 18, 2008).
  • Rule 260.105.40 cites Rule 7d-2(a)(2) as 17 CFR 7d-2(a)(2).  The correct citation is 17 CFR § 270.7d-2(a)(2).
  • Rule 260.115 refers to “industrial loan company”.  This should be updated to “industrial bank”.  2000 Cal. Stat. ch. 1015 (S.B. 2148 (Polanco)).

I am sure that I have overlooked other incorrect or outdated provisions.  Please let me know if you find some that I have missed.

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