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June 18, 2013

California Court of Appeal Interprets "Controlling Person" Liability Under State and Federal Securities Laws

Sheppard, Mullin, Richter & Hampton LLP
Securities and Corporate Finance Practice
Sheppard, Mullin, Richter & Hampton LLP
Friday, June 10, 2011
Corporate & Business Organizations / Securities & SEC
All Federal / California
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In Hellum v. Breyer, No. A127660, 2011 WL 1631662 (Cal. App. 1st Dist. Apr. 29, 2011), the California Court of Appeal for the First Districtreversed the dismissal of state and federal securities law claims against three outside directors of a closely held California corporation. The Court held that under Section 25504 of the California Corporations Code(“Section 25504”), directors and officers of a corporation are presumptively liable for the corporation’s violations of state securities laws. The Court held that plaintiffs need not allege that directors or officers exercised actual control over the corporation or its purported wrongdoing in order to state a cause of action under Section 25504. This decision makes it easier for a controlling person claim against officers and directors of a California corporation to survive the pleadings stage.

Copyright © 2013, Sheppard Mullin Richter & Hampton LLP.

About the Author

Securities and Corporate Finance Practice

Sheppard Mullin's securities and corporate finance practice includes a seasoned team of securities attorneys who represent a wide range of public companies and investment bankers. Our attorneys have significant experience in all areas of regulatory compliance and disclosure under the Securities Exchange Act of 1934 and capital formation under the Securities Act of 1933. We advise on corporate governance issues and have extensive experience advising boards, audit committees, compensation committees and nominating and governance committees of public companies. Our securities practice also...

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