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"The Strongest Corporate Accountability Law In The Nation" Is Officially In Desuetude

In 2003, The California legislature enacted SB 523 to subject certain corporations to civil penalties of up to $1 million if the corporation has knowledge of certain acts and fails to notify the Attorney General or the "appropriate government agency" and shareholders or investors.  The bill's sponsor, the Foundation for Taxpayer and Consumer Rights (now known as Consumer Watchdog), hailed the legislation as the strongest corporate accountability law in the nation.

This law, Corporations Code Section 2207, has now been in effect for the last 14 years.  Therefore, it is reasonable to ask "What is it good for?".  To borrow a line from Norman Whitfield and Barrett Strong, the answer appears to be "absolutely nothing". 

Recently, I submitted Public Records Act requests to the offices of the Attorney General, the Department of Business Oversight, the Department of Insurance and Department of Managed Health Care and a Freedom of Information Act request to the Securities and Exchange Commission.  In each case, I asked for copies of any notices received pursuant to Section 2207 from January 1, 2004 through the date of the request.  None of these agencies could locate even a single notice.  

Two heptads of nonuse would seem to be good cause for the legislature to consider repealing Section 2207.

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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...