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CALIFORNIA CORPORATE & SECURITIES LAW

Is Rescission Ever Legal?

Yesterday’s post concerned when a corporation’s rescission of the issuance of shares does not constitute a “distribution to its shareholders” as defined in Section 166 of the California Corporations Code.  I noted that one of the three conditions is that “it is reasonably likely that the holder or holders of the shares in question could…

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Section 25501.5 – I Ask Again What Do It Mean?

Corporations Code Section 25501.5 generally authorizes an action for rescission (or damages, if the security is no longer owned) by any person “who purchases a security from or sells a security to a broker-dealer that is required to be licensed and has not”.  A right of rescission makes sense when the unlicensed broker-dealer is acting…

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In This “Unreliable” Opinion, Court Requires Privity For Action Against Unlicensed Broker-Dealer

Since California Corporations Code Section 25501.5 was enacted ten years ago, I’ve been repeatedly asked “What do it mean?“.  The statute provides that a person who purchases a security from, or sells a security to, an unlicensed broker-dealer may bring an action for rescission of the sale or purchase or, if the plaintiff or the defendant no longer owns…

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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…

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What Do It [§ 25501.5] Mean?

I’ve received several responses to my post last week concerning the meaning of California Corporations Code Section 25501.5.  Alan Parness, Chairman of the ABA Business Law Section’s Committee on State Regulation of Securities, observes that the remedies of rescission or damages can be “legislative overkill”.  He notes that investors will typically pursue these remedies only…

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Section 25501.5 – What Do It Mean?

In 2004, the California Legislature added Section 25501.5 to the Corporate Securities Law of 1968.  Ever since then, I’ve been asked “What do it mean?” Corporations Code Section 25501.5 generally authorizes an action for rescission (or damages, if the security is no longer owned) by any person “who purchases a security from or sells a security to a broker-dealer…

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