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Section 9(a)(4) Versus Section 25400(d)

The liability provisions of California's Corporate Securities Law of 1968 are largely copied from the liability provisions of the federal securities laws.  Among these "borrowed" provisions are Sections 25400/2500 which parallel Section 9 of the Exchange Act.  Kamen v. Lindly, 94 Cal. App. 4th 197, 202-203 (2001).  Subdivision (d) of Section 25400 deals specifically with false and misleading statements.  Below is a comparison of Section 25400(d) to Section 9:

25400(d)

Originally, Section 9 related only to securities listed on a national securities exchange, but has been amended to include "any security not so registered" as well as any security-based swap or any security-based swap agreement with respect to such security.  Section 9 also now refers to security-based swap dealers and major security-based swap participants.  The CSL does not use the term "security-based swap".  

The California statute also refers directly to an omission of any material fact while Section 9(a)(4) does not.  Nonetheless, the federal courts seem to assume that omissions of material fact may provide a basis for liability under Section 9.  Chemetron Corp. v. Bus. Funds, Inc., 682 F.2d 1149, 1161-62 (5th Cir. 1982) (footnotes omitted), vacated on other grounds, 460 U.S. 1007, 103 S. Ct. 1245, 75 L. Ed. 2d 476 (1983), cited with approval in Salvani v. InvestorsHub.com, Inc., 628 Fed. Appx. 784, 786 (2d Cir. 2015). 

A forthcoming post will discuss the elements of a claim under Section 25400(d) and whether the California courts have parted company with federal interpretations of Section 9(a)(4).

 

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About this Author

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

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