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Section 25401 – Does No One Know Its History?

A few years back, I criticized the amendment of California Corporations Code Section 25401 to conform to Rule 10b-5 under the Securities Exchange Act of 1934.  See California Creates Complete Chaos By Rewriting Anti-Fraud Statute, But “We Are Against Fraud Aren’t We?  At the time, I observed:

 Apparently, the legislature didn’t recognize that Section 25501 was based on Section 12(a)(2) of the Securities Act of 1933 while Rule 10b-5 was adopted under Section 10(b) of the Securities Exchange Act of 1934.

Fortunately, the legislature reconsidered its handiwork and in 2015 returned Section 25401 to its former text.  See California Reverts To Former Securities Anti-Fraud Statute.

Nonetheless, people still confound the statutory antecedents of Section 25401.  Recently, I noted the following asserveration in a complaint filed by the Securities and Exchange Commission:

The California order found that Wilson had violated sections 25110 and 25401 of the California Corporations Code, California’s state analogues of Sections 5 and 17(a)(2) of the Securities Act —that is, that Wilson had sold non-exempt securities without “qualification” (which is akin to registration) and that Wilson offered and sold securities by means of written or oral communications that included untrue statements or omissions of material facts.

SEC v. Cash Capital, LLC et al. S.D. Cal. Case No. 17CV1536 L AGS.  It may not make any difference to the SEC’s case, but I cannot help but be reminded of George Santayana’s aphorism, “Those who cannot remember the past are condemned to repeat it”. The Life of Reason: Reason in Common Sense.

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About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm

Keith Paul Bishop is a partner in Allen Matkins' Corporate and Securities practice group, and works out of the Orange County office. He represents clients in a wide range of corporate transactions, including public and private securities offerings of debt and equity, mergers and acquisitions, proxy contests and tender offers, corporate governance matters and federal and state securities laws (including the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act), investment adviser, financial services regulation, and California administrative law. He regularly advises clients...