Federal Court Sides With Second DCA In Privity Split

In Moss v. Kroner, 197 Cal. App. 4th 860 (2011), the Second District Court of Appeal found that rescission was available to a plaintiff under Corporations Code Section 25504 even though the plaintiff was not in privity with the defendant.  Section 25504 imposes liability on specified persons who are in “control” of persons who are liable under Section

Eureka! Bill Introduced To Homologate Finders

Questions about the use of finders have bedeviled transactional lawyers for years.  The need for finders is the unintended consequence of the federal and state securities law exemptions that are conditioned on the absence of a general solicitation.  Most start-ups don’t have preexisting relationships with rich people (aka accredited investors).  Thus, they are sorely tempted

When Asking For Spousal Consent Is Unlawful

From time to time, a question will arise about the necessity of obtaining spousal consent in connection with the purchase or sale of a security.  Interestingly, California declares it unlawful for any agent or broker-dealer to require prior spousal consent or authorization as a condition to the purchase or sale of securities in the name of

SEC Marks The Ides By Bringing Actions Involving Secondary Market For Private Company Shares

Nearly two years ago, I began writing about some of the issues related to secondary trading in private company shares.  Yesterday (Prid. Id. Mart.), the Securities and Exchange Commission announced that it had taken action against several firms and individuals related to activities involving secondary trading of private company shares.  In this Litigation Release, the

FINRA’s Suitability Rule Is No Match For California’s Rule

FINRA’s New Rule Beginning on July 9, 2012, broker-dealers will be subject to FINRA’s new suitability rule.  Rule 2111(a) requires FINRA members and their associated person to have “a reasonable basis to believe that a recommended transaction or investment strategy involving a security or securities is suitable for the customer, based on the information obtained

Mirabile Dictu! “Common Stock Does not Constitute an Investment in ‘Stock'”

Anyone who has picked up a prospectus or a private placement memorandum has undoubtedly seen, if not read, various legends and other warnings.  Recently, I came across the following legend in an offering document: COMMON STOCK DOES NOT CONSTITUTE AN INVESTMENT IN “STOCK” IN THE COMMON SENSE OF THE TERM.  PURCHASERS SHOULD NOT PURCHASE COMMON

Commissioner Revises Broker-Dealer Release

In 2007, a California Court of Appeal upheld the convictions of two officers/directors for engaging in unlicensed broker-dealer activity in violation of Corporations Code Section 25210.  People v. Cole,  156 Cal. App. 4th 452 (2007).  Neither defendant contested that he fell within the definition of “broker-dealer” in Corporations Code Section 25004 (i.e., any person engaged in

Are Issuers Of Options Broker-Dealers?

In the last two posts, I’ve been discussing standardized options trading.  Today, I address the question of whether persons engaged in the regular business of issuing options may fall within the definition of a “broker-dealer” for purposes of the Corporate Securities Law of 1968.  The short answer is that they can. In Standardized Options – Who’s Your Daddy?,

Placement Agent Law Clean-Up Amendments Introduced

As I mentioned in this March 11 posting, Senator Ed Hernandez has introduced a bill, SB 398, that is intended to clean-up some of the many questions arising under legislation, AB 1743, that was enacted last session.  In general, AB 1743 requires placement agents for investment funds and advisers seeking access to CalPERS or other California public retirement systems

Broker-Dealer Safe Harbor Rule Nears Adoption

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In 2007, the California Court of Appeal fired what I called at the time “a shot not heard” when it issued its opinion in People v. Cole, 156 Cal. App. 4th 452 (2007).   Seemingly, a key holding of that case was that corporate officers and directors of issuers are required to be licensed as broker-dealers