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CALIFORNIA CORPORATE & SECURITIES LAW

Silver Hills Doesn’t Mute Howey

Anyone who has studied securities regulation since 1946 should be familiar with the U.S. Supreme Court’s definition of a “security” as enunciated by Justice Frank Murphy in S.E.C. v. Howey Co., 328 U.S. 293 (1946).  That test asks “whether the scheme involves an investment of money in a common enterprise with profits to come solely from the…

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What Do You Know? Bill Proposes To Eliminate Scienter

Corporations Code Section 25401 is California’s basic securities antifraud statute: It is unlawful for any person to offer or sell a security in this state, or to buy or offer to buy a security in this state, by means of any written or oral communication that includes an untrue statement of a material fact or…

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Why The SEC Isn’t Vegas

Last week, I wrote that the Securities and Exchange Commission is sending letters to registrants requesting information about compliance with Regulation G and Item 10(e) of Regulation S-K.  These letters request issuers to voluntarily provide information concerning their disclosures of non-GAAP financial measures.  I cautioned that registrants should read the accompanying SEC Form 1662 carefully before…

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Ninth Circuit Holds Attorney’s Statement Was “Made”, Not Attributed

Readers familiar with the Nicene Creed will instantly recognize the phrase “begotten, not made”.  I won’t wade into the theological meaning of this phrase, but I cite it as an example of the importance that can be attached to the seemingly simple concept of making.  Under Rule 10b-5, it is unlawful for “any person, directly or indirectly, .…

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Class A Is Class A and Class B Is Class B And Shall Ever The Twain Meet?

In addition to directors and officers, Section 16 of the Securities Exchange Act of 1934 applies to every person who is “directly or indirectly the beneficial owner of more than 10 percent of any class of any equity security (other than an exempted security) which is registered pursuant to Section 12” of the Act.  This,…

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Is Certiorari A Possibility For SLUSA Question Not Addressed By Any Federal Circuit Court?

In Luther v. Countrywide Financial Corp., 195 Cal. App. 4th 789 (2011), the trial court ruled that state courts do not enjoy concurrent jurisdiction when a class action meeting the definition of a “covered class action” under the Securities Litigation Uniform Standards Act of 1998 (aka “SLUSA”) did not involve a “covered security”, as also…

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Do State Courts Lack Subject Matter Jurisdiction Over Covered Class Actions That Allege Only ’33 Act Claims?

In Luther v. Countrywide Financial Corp., 195 Cal. App. 4th 789 (2011), the trial court ruled that state courts do not enjoy concurrent jurisdiction when a class action meeting the definition of a “covered class action” under the Securities Litigation Uniform Standards Act of 1998 (aka “SLUSA”) did not involve a “covered security” as also defined by SLUSA…

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Unilateral Disarmament, The Prisoners’ Dilemma And SEC Staff Comment Letters

In an arms race, each suffers the worst result if it disarms and the other side remains armed.  However, if both sides are armed, they are not as well off as when both sides are disarmed.  This is, of course, the classic “Prisoners’ Dilemma” game (see table below). Much the same logic applies to the SEC’s insistence…

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Is Forced Speech In Responding To Staff Comment Letters Inaccurate Speech?

In 2014, the Securities and Exchange Commission announced that all comment letters would request that the issuer include the so-called “Tandy Letter”.  Thus, all staff comment letters include a request for a written statement in haec verba: The company is responsible for the adequacy and accuracy of the disclosure in the filing; Staff comments or…

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Plaintiffs Find California Courts Congenial To Section 11 Actions

Muttering About Mottoes The official motto of the State of California is “Eureka”.  Cal. Gov’t Code § 420.5.  The word is a transliteration of the Greek word εὕρηκα which is first person, singular, indicative active form of verb “find”.  Thus, it translates into “I have found it”.  The motto, which appears on the state’s seal,…

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