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Law Offices of Eric Norstedt, P.A.
2924 Davie Road, Suite 200
Davie, Florida, 33314
P: (954) 467-6263

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Securities Law
FEDERAL SECURITIES LAW
 - Securities Act of 1933
 - Securities Act of 1934
    - Rules Promulgated under
      the Securities Act of 1934

STATE SECURITIES LAW

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Selected Sections of the

California Securities Act

 

Sections included on the California Securities Act Page:

CORPORATIONS CODE
SECTION 25000-25023

DEFINITIONS

25000.  This division may be known as the "Corporate Securities Law of 1968."  References herein to "this law" refer to the applicable provisions of this division.

25001.  Unless the context otherwise requires, the definitions in this part apply throughout this division.

25002.  "Advertisement" means any written or printed communication or any communication by means of recorded telephone messages or spoken on radio, television, or similar communications media, published in connection with the offer or sale of a security.

25003.  (a) "Agent" means any individual, other than a broker-dealer or a partner of a licensed broker-dealer, who represents a broker-dealer or who for compensation represents an issuer in effecting or attempting to effect purchases or sales of securities in this state.

   (b) "Agent" does not include an individual who only represents an issuer in effecting transactions in securities exempted by subdivision (a), (b), (e), (f), (g), (j), (k) or (l) of Section 25100 or in effecting transactions exempted by Section 25102, and does not include an individual who has no place of business in this state if he or she effects transactions in this state exclusively with broker-dealers.

   (c)  "Agent" does not include an associated person of a broker or dealer effecting transactions described in Section 15(h)(3) of the Securities Exchange Act of 1934, subject to the provisions of Section 15(h)(2) of that act.

   (d) An officer or director of a broker-dealer or issuer, or an individual occupying a similar status or performing similar functions, is an agent only if he otherwise comes within this definition and receives compensation specifically related to purchases or sales of securities.

25003.5.  "Business days" are all days other than every Saturday, every Sunday, and such other days as are specified or provided for as holidays in the Government Code of the State of California.

25004.  (a) "Broker-dealer" means any person engaged in the business of effecting transactions in securities in this state for the account of others or for his own account.  "Broker-dealer" also includes a person engaged in the regular business of issuing or guaranteeing options with regard to securities not of his own issue. "Broker-dealer" does not include any of the following:

(1) Any other issuer.   

(2) An agent, when an employee of a broker-dealer or issuer.

   (3) A bank, trust company, or savings and loan association.

   (4) Any person insofar as he buys or sells securities for his own account, either individually or in some fiduciary capacity, but not as part of a regular business.

   (5) A person who has no place of business in this state if he effects transactions in this state exclusively with  (A) the issuers of the securities involved in the transactions or  (B) other broker-dealers.

   (6) A broker licensed by the Real Estate Commissioner of this state when engaged in transactions in securities exempted by subdivision (f) or (p) of Section 25100 or in securities the issuance of which is subject to authorization by the Real Estate Commissioner of this state or in transactions exempted by subdivision (e) of Section 25102.

   (7) An exchange certified by the Commissioner of Corporations pursuant to this section when it is issuing or guaranteeing options. The commissioner may by order certify an exchange under this section upon such conditions as he by rule or order deems appropriate, and upon notice and opportunity to be heard he may suspend or revoke such certification, if he finds such certification, suspension, or revocation to be in the public interest and necessary and appropriate for the protection of investors.

   (b) For purposes of this section, an agent is an employee of a broker-dealer under paragraph (2) of subdivision (a) when the agent is employed by or associated with the broker-dealer under all of the following conditions:

   (1) The agent is subject to the supervision and control of the

broker-dealer.

   (2) The agent performs under the name, authority, and marketing

policies of the broker-dealer.

   (3) The agent discloses to investors the identity of the

broker-dealer.

   (4) The agent is reported pursuant to subdivision (c) of Section

25210 and the rules adopted thereunder.

25005.  "Commissioner" means the Commissioner of Corporations.

25005.1.  "Entity conversion transaction" means a conversion pursuant to Section 1151, 1157, 15677.2, 15677.8, 16902, 16908, 17540.2, 17540.8, or a conversion that occurs entirely out of state, unless the interests in the entity resulting from the conversion to be held by the equity holders of the entity being converted as a result of the conversion are not securities.  For purposes of Sections 25103 and 25120 an entity conversion transaction is not a change in the rights, preferences, privileges, or restrictions of or on outstanding securities or an exchange of securities by the issuer with its existing security holders exclusively.

25006.  "Fraud," "deceit," and "defraud" are not limited to common law fraud or deceit.

25007.  "Guaranteed" means guaranteed as to payment of principal, interest, dividends, or call premium.

25008.  (a) An offer or sale of a security is made in this state when an offer to sell is made in this state, or an offer to buy is accepted in this state, or (if both the seller and the purchaser are domiciled in this state) the security is delivered to the purchaser in this state.  An offer to buy or a purchase of a security is made in this state when an offer to buy is made in this state, or an offer to sell is accepted in this state, or (if both the seller and the purchaser are domiciled in this state) the security is delivered to the purchaser in this state.

   (b) An offer to sell or to buy is made in this state when the offer either originates from this state or is directed by the offeror to this state and received at the place to which it is directed.  An offer to buy or to sell is accepted in this state when acceptance is communicated to the offeror in this state; and acceptance is communicated to the offeror in this state when the offeree directs it to the offeror in this state reasonably believing the offeror to be in this state and it is received at the place to which it is directed.  A security is delivered to the purchaser in this state when the certificate or other evidence of the security is directed to the purchaser in this state and received at the place to which it is directed.

   (c) An offer to sell or to buy is not made in this state merely because (1) the publisher circulates or there is circulated on his behalf in this state any bona fide newspaper or other publication of general, regular and paid circulation which has had more than two-thirds of its circulation outside this state during the past 12 months, or (2) a radio or television program originating outside this state is received in this state.

25009.  (a) "Investment adviser" means any person who, for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing or selling securities, or who, for compensation and as a part of a regular business, publishes analyses or reports concerning securities.  "Investment adviser" does not include (1) a bank, trust company or savings and loan association; (2) an attorney at law, accountant, engineer or teacher whose performance of these services is solely incidental to the practice of  his or her profession; (3) an associated person of an investment adviser; (4) a broker-dealer or agent of a broker-dealer whose performance of these services is solely incidental to the conduct of the business of a broker-dealer and who receives no special compensation for them; or (5) a publisher of any bona fide newspaper, news magazine or business or financial publication of general, regular and paid circulation and the agents and servants thereof, but this paragraph (5) does not exclude any such person who engages in any other activity which would constitute that person an investment adviser within the meaning of this section.

   (b) "Investment adviser" also includes any person who  uses the title "financial planner" and who, for compensation, engages in the business, whether principally or as part of another business, of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing or selling securities, or who, for compensation and as part of a regular business, publishes analyses or reports concerning securities.  This subdivision does not apply to:  (1) a bank, trust company, or savings and loan association; (2) an attorney at law, accountant, engineer, or teacher whose performance of these services is solely incidental to the practice of his or her profession, so long as these individuals do not use the title "financial planner;" (3) an associated person of an investment adviser where the investment adviser is licensed or exempt from licensure under this law; (4) an agent of a broker-dealer where the broker-dealer is licensed or exempt from licensure under this law, so long as (A) the performance of these services by the agent is solely incidental to the conduct of the business of the broker-dealer, and (B) the agent receives no special compensation for the performance of these services; or (5) a publisher set forth in paragraph (5) of subdivision (a), so long as the publisher or the agents and servants of the publisher are not engaged in any other activity which would constitute that person an investment adviser within the meaning of this section.

25009.1.  "Investment adviser" does not include persons excepted from the definition of "investment adviser" by Section 202(a)(11) of the Investment Advisers Act of 1940 (15 U.S.C. 80a-1 et seq., as amended), except that with regard to those persons the commissioner may investigate and bring enforcement actions with respect to fraud and deceit, including and without limitation fraud and deceit under Section 25235, and any rules of the commissioner adopted thereunder.

25009.5.  (a) "Investment adviser representative" or "associated person of an investment adviser" means any partner, officer, director of (or a person occupying a similar status or performing similar functions) or other individual, except clerical or ministerial personnel, who is employed by or associated with, or subject to the supervision and control of, an investment adviser that has obtained a certificate or that is required to obtain a certificate under this law, and who does any of the following:

   (1) Makes any recommendations or otherwise renders advice regarding securities.

   (2) Manages accounts or portfolios of clients.

   (3) Determines which recommendation or advice regarding securities should be given.

   (4) Solicits, offers, or negotiates for the sale or sells investment advisory services.

   (5) Supervises employees who perform any of the foregoing.

  (b) "Investment adviser representative" means, with respect to an investment adviser subject to Section 25230.1, a person defined as an investment adviser representative by Rule 203A-3 of the Securities and Exchange Commission (17 C.F.R. 275.203A-3) and who has a place of business in this state.

25010.  "Issuer" means any person who issues or proposes to issue any security, except that:

   (a) With respect to certificates of deposit, voting trust certificates or collateral-trust certificates, or with respect to certificates of interest or shares in an unincorporated investment trust not having a board of directors or persons performing similar functions or of the fixed, restricted management or unit type, "issuer" means the person or persons performing the acts and assuming the duties of depositor or manager pursuant to the provisions of the trust or other agreement or instrument under which the security is issued.  However, with respect to equipment-trust certificates or like securities, "issuer" means the person by whom the equipment or property is or is to be used.

   (b) With respect to certificates of interest or participation in oil, gas or mining titles or leases or in payments out of production under those titles or leases, "issuer" means the person or persons in active control of the exploration or development of the property who sell those interests or participations or payments or any person or persons who subdivide and sell those interests or participations or payments.  The determination of the person or persons in active control of the exploration or development of the property shall be made on the basis of the actual relationship of the parties and not on the basis of the legal designation of a person's interest.

   (c) With respect to a fractional or pooled interest in a viatical or life settlement contract, "issuer" means the person who creates, for the purposes of sale, the fractional or pooled interest.  In the case of a viatical or life settlement contract that is not fractionalized or pooled, "issuer" means the person effecting the transactions with the investors in those contracts.   

(d) In the case of an unincorporated association which provides by its articles for limited liability of any or all of its members, or in the case of a trust, committee, or other legal entity, the trustees or members thereof shall not be individually liable as issuers of any security issued by the association, trust, committee, or other legal entity.

25011.  "Nonissuer transaction" means any transaction not directly or indirectly for the benefit of the issuer.  A transaction is indirectly for the benefit of the issuer if any portion of the purchase price of any securities involved in the transaction will be received indirectly by the issuer.  An offering which involves both an issuer transaction and a nonissuer transaction shall be treated for the purposes of Chapters 2 (commencing with Section 25110) and 4 (commencing with Section 25130) of Part 2 of this division as an issuer transaction, but for the purposes of Chapter 1 (commencing with Section 25100) of Part 2 of this division they shall be treated as separate transactions.

25012.  "Owners' association" means a nonprofit corporation or association created to own or lease the commonly owned lots, parcels or areas referred to in clause (a) of Section 25015, or to provide management, maintenance, preservation or control of either such lots, parcels or areas or of the separately owned lots, parcels or areas, or both, or any portion of or interest in them,  or interest subject to subdivision (g) of Section 11004.5 of the Business and Professions Code, if the shares or certificates of membership therein are transferable only by transfer of the interests in the lots, parcels or areas.  Such shares of stock or memberships shall be considered interests in a real estate development or in subdivided lands or a subdivision.

25013.  "Person" means an individual, a corporation, a partnership, a limited liability company, a joint venture, an association, a joint stock company, a trust, an unincorporated organization, a government, or a political subdivision of a government.

25014.  "Publish" means publicly to issue or circulate by newspaper, mail, radio or television, or otherwise to disseminate to the public.

25014.5.  "Rollup participant" means a finite-life limited partnership.

   (a) Except as provided in subdivision (b) of Section 25014.6, a limited partnership has "finite-life" if both of the following apply:

   (1) It operates as a conduit vehicle for investors to participate in the ownership of assets for a limited period of time.

   (2) It has a policy or purpose of distributing to investors substantially all proceeds from the sale, financing, or refinancing

of assets, whether for the term of the partnership or after an initial period of time following commencement of operations, rather than reinvesting those proceeds in the business.    (b) Rollup participant does not include any partnership registered under the Investment Company Act of 1940 or any business development company as defined in Section 80a-2(48) of Title 15 of the United States Code.

25014.6.  "Rollup transaction" means any transaction or series of transactions that directly or indirectly through acquisition or otherwise involves the combination or reorganization of one or more rollup participants and is one of the following:

   (a) The offer or sale of securities by a successor entity, whether newly formed or previously existing, to one or more investors of the rollup participants to be combined or reorganized.

   (b) The acquisition of the successor entity's securities by the rollup participants being combined or reorganized; provided however, that a rollup transaction shall not include any transaction that:

   (1) The Securities and Exchange Commission exempts from the definition of a rollup transaction pursuant to subparagraph (c) (ii) of Item 901 of Regulation S-K adopted by the Securities and Exchange Commission.

   (2) Is determined to be exempt from this definition by the Commissioner of Corporations upon his or her determination that this action is in the public interest and consistent with the protection of investors.

   (3) Involves one or more limited partnerships all of the securities of which are, prior to the transaction, securities for which transactions are reported under a transaction reporting plan declared effective before January 1, 1991, by the Securities and Exchange Commission under Section 11A of the Securities Exchange Act of 1934.

   (4) Involves only those issuers not required to register or report under Section 12 of the Securities Exchange Act of 1934 where the resulting issuer is also not required to register or report under Section 12.

   (5) Involves the reorganization to corporate, trust, or association form or restructuring of a single limited partnership if, as a consequence of the proposed transaction there will be no significant, adverse change in any of the following:  voting rights, the term of existence of the entity, management compensation, or investment objectives.

   (6) Involves the reorganization to corporate, trust, or association form or restructuring of a single limited partnership if each investor is provided an option to retain a security under substantially the same terms and conditions as the original issue.

   (7) Involves the reorganization to corporate, trust, or association form or restructuring of a single limited partnership if transactions in the security issued as a result of the reorganization or restructuring are not reported under a transaction reporting plan declared effective before January 1, 1991, by the Securities and Exchange Commission under Section 11A of the Securities Exchange Act of 1934.

25014.7.  (a) "Eligible rollup transaction" means a rollup transaction in which the new securities issued are either listed or approved for listing on a national securities exchange or on the National Market System of the Nasdaq Stock Market (or any successor to that entity), where the national securities exchange and the Nasdaq Stock Market (or its successor) have been certified by the commissioner under subdivision (o) of Section 25100, if the exchange or Nasdaq Stock Market (or its successor) requires as a condition to listing or designation that the rollup transaction be conducted in accordance with procedures to protect the rights of limited partners.

   (b) The rights of limited partners will be presumed to be protected if the rollup transaction provides for the right of dissenting limited partners:

   (1) To receive compensation for their limited partnership units based on an appraisal of the limited partnership assets performed by an independent appraiser unaffiliated with the sponsor or general partner of the limited partnership and which value the assets as if sold in an orderly manner in a reasonable period of time, plus or minus other balance sheet items, and less the cost of sale or refinancing.  Compensation to dissenting limited partners of rollup transactions may be cash, secured debt instruments, unsecured debt instruments, or freely tradeable securities; provided, however, that:

   (A) Rollups which utilize debt instruments as compensation provide for a trustee and an indenture to protect the rights of the debt holders and provide a rate of interest based upon, but not less than, the then applicable federal rate as determined in accordance with Section 1274 of the Internal Revenue Code of 1986.   

(B) Rollups which utilize unsecured debt instruments as compensation, in addition to the requirements of subparagraph (A) of paragraph (1), limit total leverage to 70 percent of the appraised value of the assets.

   (C) All debt securities have a term no greater than seven years and provide for prepayment with 80 percent of the net proceeds of any sale or refinancing of the assets previously owned by the entity or any part thereof.

   (D) Freely tradeable securities utilized as compensation to dissenting limited partners must be issued by an issuer whose securities are listed on a certified national securities exchange or listed on the National Market System of the Nasdaq Market System (or its successor), if so certified, for at least one year prior to the transaction, and the number of securities to be received in return for limited partnership interests must be determined by an appraisal of limited partnership assets, conducted in a manner consistent with paragraph (1) of subdivision (b), in relation to the average last sale price of the freely tradeable securities in the 20-day period following the transaction.  If the issuer of the freely tradeable securities is affiliated with the sponsor or general partner, newly issued securities to be utilized as compensation to dissenting limited partners shall not represent more than 20 percent of the issued and outstanding shares of that class of securities after giving effect to the issuance.  For the purposes of the preceding sentence, a sponsor or general partner is "affiliated" with the issuer of the freely tradeable securities if the sponsor or general partner receives any material compensation from the issuer or its affiliates in conjunction with the rollup transaction or the purchase of the general partner's interest; provided, however, that nothing herein shall restrict the ability of a sponsor or general partner to receive any payment for its equity interests and compensation as otherwise provided by this section.

   (2) To receive or retain a security with substantially the same terms and conditions as the security originally held, provided that the receipt or retention of that security is not a step in a series of subsequent transactions that directly or indirectly through acquisition or otherwise involves future combinations or reorganizations of one or more rollup participants.  Securities received or retained will be considered to have the same terms and conditions as the security originally held if:

   (A) There is no material adverse change to dissenting limited partners' rights, including, but not limited to, rights with respect to voting, the business plan, or the investment, distribution, management compensation and liquidation policies of the limited partnership or resulting entity.

   (B) The dissenting limited partners receive the same preferences, privileges, and priorities as they had pursuant to the security originally held.

   The rights set forth in paragraphs (1) and (2) are the only rights of dissenting limited partners to which the presumption under subdivision (b) applies.  A general partner or sponsor shall file an application for qualification pursuant to Section 25110 or Section 25120 with respect to any other rights proposed to be offered to dissenting limited partners.

   At the time a registration statement is filed with the Securities and Exchange Commission with respect to an eligible rollup transaction, a general partner or sponsor shall notify, to the maximum extent permitted by the federal securities laws, each limited partner who has an address in this state by certified mail of the following:  That a registration statement has been filed with the Securities and Exchange Commission with respect to a rollup transaction; that the general partner or sponsor claims an exemption from the review process under the law by virtue of Section 25014.7, which defines "eligible rollup transaction"; that the general partner or sponsor has the burden of proof under the law that the transaction meets the definition of eligible rollup transaction; and that the commissioner does not recommend or endorse the transaction.

   (c) The rights of limited partners shall be presumed not to be protected if the general partner:

   (1) Converts an equity interest in the limited partnerships subject to a rollup for which consideration was not paid and which was not otherwise provided for in the limited partnership agreement and disclosed to limited partners, into a voting interest in the new entity, provided, however, an interest originally obtained in order to comply with the provisions of Internal Revenue Service Revenue Proclamation 89-12 may be converted.

   (2) Fails to follow the valuation provisions in the limited partnership agreements of the subject limited partners when valuing their limited partnership interests.

   (3) Utilizes a future value of their equity interest rather than the current value of their equity interest, as determined by an appraisal conducted in a manner consistent with paragraph (1) of subdivision (b), when determining their interest in the new entity.

   (d) The rights of limited partners shall be presumed not to be protected as to voting rights, if:

   (1) The voting rights in the entity resulting from a rollup do not generally follow the original voting rights of the limited partnerships participating in the rollup transaction.

   (2) A majority of the interest in an entity resulting from a rollup transaction may not, without concurrence by the sponsor, general partners, board of directors or trustee, depending on the form of entity, vote to:

   (A) Amend the limited partnership agreement, articles of incorporation or bylaws, or indenture.

  (B) Dissolve the entity.

   (C) Remove management and elect new management.

   (D) Approve or disapprove the sale of substantially all of the assets of the entity.

   (3) The general partner or sponsor proposing a rollup is not required to provide each person whose equity interest is subject to the rollup transaction with a document which instructs the person on the proper procedure for voting against or dissenting from the rollup transaction.

   (4) The general partner or sponsor does not utilize an independent third party to receive and tabulate all votes and dissents, and require that the third party make the tabulation available to the general partner and any limited partner upon request at any time during and after voting occurs.

   (e) The rights of limited partners shall be presumed not to be protected as to transaction costs if:

   (1) Limited partners bear an unfair portion of the transaction costs of a proposed rollup transaction that is rejected.  For purposes of this provision, transaction costs are defined as the costs of printing and mailing the proxy, prospectus, or other documents; legal fees not related to the solicitation of votes or tenders; financial advisory fees; investment banking fees; appraisal fees; accounting fees; independent committee expenses; travel expenses; and all other fees related to the preparatory work of the transaction, but not including costs that would have otherwise been incurred by the subject limited partnerships in the ordinary course of business, or solicitation expenses.

   (2) Transaction costs of a rejected rollup transaction are not apportioned between general and limited partners of the subject limited partnerships according to the final vote on the proposed transaction as follows:

   (A) The general partner or sponsor bears all rollup transaction costs in proportion to the number of votes to reject the rollup transaction.

 

   (B) Limited partners bear transaction costs in proportion to the number of votes to approve the rollup transaction.

   (3) The dissenting limited partnership is required to pay any of the costs of the rollup transaction and the general partner or sponsor is not required to pay the rollup transaction costs on behalf of the dissenting limited partnerships in a rollup in which one or more limited partnerships determines not to approve the transaction, but where the rollup transaction is consummated with respect to one or more approving limited partnerships.

   (f) The rights of limited partners shall be presumed not to be protected as to fees of general partners and sponsors, if:

   (1) General partners and sponsors are not prevented from receiving both unearned management fees discounted to a present value, if those fees were not previously provided for in the limited partnership agreement and disclosed to limited partners, and new asset-based fees.

   (2) Property management fees and other management fees are not appropriate, not reasonable and greater than what would be paid to third parties for performing similar services.

   (3) Changes in fees which are substantial and adverse to limited

partners are not approved by an independent committee according to the facts and circumstances of each transaction.

   (g) A general partner or sponsor proposing a rollup transaction shall pay all solicitation expenses related to the transaction, including all preparatory work related thereto, in the event the rollup transaction is not approved.  For purposes of this section, "solicitation expenses" include direct marketing expenses such as telephone calls, broker-dealer fact sheets, legal and other fees related to the solicitation, as well as direct solicitation compensation to brokers and dealers.

   (h) A broker or dealer may not receive compensation for soliciting votes or tenders from limited partners in connection with a rollup transaction unless that compensation:

   (1) Is payable and equal in amount regardless of whether the limited partner votes affirmatively or negatively in the proposed rollup.

   (2) In the aggregate, does not exceed 2 percent of the exchange value of the newly created securities.

   (3) Is paid regardless of whether the limited partners reject the proposed rollup transaction.

   (i) As used in this section, the following terms have the following meanings:

   (1) "Limited partnership" includes any entity determined to be a "partnership" pursuant to Section 14(h)(4)(B) of the Securities Exchange Act of 1934 or such other entity having a substantially economically equivalent form of ownership instrument.

   (2) "Dissenting limited partner" means a holder or a beneficial

interest in a limited partnership that is the subject of a rollup transaction who casts a vote against the rollup transaction, except that for purposes of an exchange or tender offer dissenting limited partner means any person who files a dissent from the terms of the transaction with the party responsible for tabulating the votes or tenders, to be received in connection with the transaction during the period in which the offer is outstanding.

   (3) "Management fee" means a fee paid to the sponsor, general partner, their affiliates, or other persons for management and administration of the limited partnership.

25015.  "Real estate development" means a development (a) which consists or will consist of separately owned lots, parcels or areas with either or both of the following features:  (1) one or more additional continguous or noncontiguous lots, parcels, or areas owned in common by the owners of the separately owned lots, parcels, or areas, or (2) mutual, common, or reciprocal interests in or restrictions upon all or portions of such separately owned lots, parcels, or areas; and (b) in which the several owners of the separately owned lots, parcels, or areas have rights, directly or indirectly, to the beneficial use and enjoyment of the lots, parcels, or areas owned in common, or any one or more of them or portions thereof or interests therein, or of the interests or restrictions referred to in clause (a) above, or both.  The estate in a separately or commonly owned lot, parcel, or area may be an estate of inheritance or perpetual estate, an estate for life, or an estate for years.  The common ownership of the lots, parcels, or areas or the enjoyment of the interests or restrictions referred to in clause (a) above or both may be through ownership of shares of stock or memberships in an owners' association or otherwise.

25016.  "Rule" means any published regulation or standard of general application issued by the commissioner.  "Order" means a consent, authorization, approval, permit, or requirement applicable to a specific case issued by the commissioner.

25017.  (a) "Sale" or "sell" includes every contract of sale of, contract to sell, or disposition of, a security or interest in a security for value.  "Sale" or "sell" includes any exchange of securities and any change in the rights, preferences, privileges, or restrictions of or on outstanding securities.

   (b) "Offer" or "offer to sell" includes every attempt or offer to dispose of, or solicitation of an offer to buy, a security or interest in a security for value.

   (c) Any security given or delivered with, or as a bonus on account of, any purchase of securities or any other thing constitutes a part of the subject of the purchase and is considered to have been offered and sold for value.

   (d) A purported gift of assessable stock involves an offer and sale.

   (e) Every sale or offer of a warrant or right to purchase or subscribe to another security of the same or another issuer, as well as every sale or offer of a security which gives the holder a present or future right or privilege to convert the security into another security of the same or another issuer, includes an offer and sale of the other security only at the time of the offer or sale of the warrant or right or convertible security; but neither the exercise of the right to purchase or subscribe or to convert nor the issuance of securities pursuant thereto is an offer or sale.

   (f) The terms defined in this section do not include:  (1) any bona fide secured transaction in or loan of outstanding securities;

(2) any stock dividend payable with respect to common stock of a corporation solely (except for any cash or scrip paid for fractional shares) in shares of such common stock, if the corporation has no other class of voting stock outstanding; provided, that shares issued in any such dividend shall be subject to any conditions previously imposed by the commissioner applicable to the shares with respect to which they are issued; or (3) any act incident to a transaction or reorganization approved by a state or federal court in which securities are issued and exchanged for one or more outstanding securities, claims, or property interests, or partly in that exchange and partly for cash, and nothing in this division shall be construed to prohibit a court from applying the protections described in Section 25014.7 or 25140 and the regulations adopted thereunder when approving any transaction involving a rollup participant.

25018.  "Securities Act of 1933," "Securities Exchange Act of 1934," "Public Utility Holding Company Act of 1935," "Investment Advisers Act of 1940," and "Investment Company Act of 1940" mean the federal statutes of those names as amended before or after the effective date

of this law.

25019.  "Security" means any note; stock; treasury stock; membership in an incorporated or unincorporated association; bond; debenture; evidence of indebtedness; certificate of interest or participation in any profit-sharing agreement; collateral trust certificate; preorganization certificate or subscription; transferable share; investment contract; viatical settlement contract or a fractionalized or pooled interest therein; life settlement contract or a fractionalized or pooled interest therein; voting trust certificate; certificate of deposit for a security; interest in a limited liability company and any class or series of those interests (including any fractional or other interest in that interest), except a membership interest in a limited liability company in which the person claiming this exception can prove that all of the members are actively engaged in the management of the limited liability company; provided that evidence that members vote or have the right to vote, or the right to information concerning the business and affairs of the limited liability company, or the right to participate in management, shall not establish, without more, that all members are actively engaged in the management of the limited liability company; certificate of interest or participation in an oil, gas or mining title or lease or in payments out of production under that title or lease; put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof); or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency; any beneficial interest or other security issued in connection with a funded employees' pension, profit sharing, stock bonus, or similar benefit plan; or, in general, any interest or instrument commonly known as a "security"; or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing. All of the foregoing are securities whether or not evidenced by a written document.  "Security" does not include:  (1) any beneficial interest in any voluntary inter vivos trust which is not created for the purpose of carrying on any business or solely for the purpose of voting, or (2) any beneficial interest in any testamentary trust, or (3) any insurance or endowment policy or annuity contract under which an insurance company admitted in this state promises to pay a sum of money (whether or not based upon the investment performance of a segregated fund) either in a lump sum or periodically for life or some other specified period, or (4) any franchise subject to registration under the Franchise Investment Law (Division 5 (commencing with Section 31000)), or exempted from registration by Section 31100 or 31101.

25020.  "State" means any state, territory, or possession of the United States, the District of Columbia and Puerto Rico.

25021.  "Subdivided lands" and "subdivision" have the meanings prescribed in Sections 11000, 11004.5, and 11218 of the Business and Professions Code.

25022.  "Underwriter" means a person who has agreed with an issuer or other person on whose behalf a distribution is to be made (a) to purchase securities for distribution or (b) to distribute securities for or on behalf of such issuer or other person or (c) to manage or supervise a distribution of securities for or on behalf of such issuer or other person.

25023.  (a) Except as provided in subdivision (b), "viatical settlement contract" means an agreement as defined in paragraph (1) of subdivision (a) of Section 10113.1 of the Insurance Code and "life settlement contract" means an agreement, other than a viatical settlement contract, for the purchase, sale, assignment, transfer, devise, or bequest of any portion of the death benefit or ownership of a life insurance policy or certificate for consideration that is less than the expected death benefit of the life insurance policy or certificate.

   (b) "Viatical settlement contract" and "life settlement contract" do not include any of the following:

   (1) The assignment, transfer, sale, devise, or bequest of a death benefit, life insurance policy, or certificate of insurance by the insured or the original owner to any person if the assignment, transfer, sale, devise, or bequest (A) is not accompanied by the publication of any advertisement and (B) is not effected by or through a broker-dealer (Section 25004).

   (2) The assignment of a life insurance policy to a bank, savings bank, savings association, credit union, or other lender (either licensed or not required to be licensed) as collateral for a loan, or to a stop-loss insurer or reinsurer.    (3) The exercise of accelerated benefits pursuant to the terms of a life insurance policy issued in accordance with the insurance laws of this state.

   (4) The assignment, transfer, sale, devise or bequest of any undivided death benefit, life insurance policy, or certificate of insurance by an entity licensed pursuant to Section 10113.2 of the Insurance Code, or a viatical or life settlement provider licensed from another state, to one individual or entity, provided that the individual or entity represents that the individual or entity is purchasing for its own account (or trust account, if the entity is a trustee) and not with a view to or for sale in connection with a distribution of the individual death benefit, life insurance policy, or certificate of insurance.

ADVERTISING SECURITIES

CORPORATIONS CODE
SECTION 25300-25302

25300.  (a) No person shall publish any advertisement in this state concerning any security sold or offered for sale in this state unless a true copy of the advertisement has first been filed in the office of the commissioner at least three business days prior to the publication or such shorter period as the commissioner may by rule or order allow.

   (b) Subdivision (a) of this section does not apply to:

   (1) Any advertisement for any security published by a licensed broker-dealer if he or she is not effecting transactions in such security as an underwriter or other participant in a distribution for the issuer;

   (2) Any advertisement for any security published by an issuer or any underwriter or other participant in a distribution for the issuer if the security or transaction is exempted by the provisions of Chapter 1 (commencing with Section 25100) of Part 2 of this division;

   (3) Any advertisement for any security in a nonissuer transaction if the security is exempted by Section 25100 or an offer of the security is exempted by subdivision (g) of Section 25104;

   (4) Any advertisement permitted or required by Section 5(b)(2) or Section 2(10)(b) of the Securities Act of 1933 with respect to a security which has been registered under the Securities Act of 1933 and qualified for sale in this state;

   (5) Any advertisement with respect to (A) a security that is subject to Sections 25100.1 and 25101.1 and the advertisement is permitted or required under the Securities Act of 1933, (B) a transaction that is subject to Section 25102.1 and the advertisement is permitted or required under the Securities Act of 1933, or (C) an

investment adviser that is subject to Section 25230.1 and the advertisement is permitted or required under the Investment Adviser Act of 1940; or

   (6) Any other advertisement exempted by rule of the commissioner.

25301.  All advertisements published by any broker-dealer that are exempted from filing by paragraph (1) or paragraph (6) of subdivision (b) of Section 25300 shall be approved prior to use by signature or initial of an officer, partner, or responsible supervisory official of the broker-dealer and the signed or initialed copy shall be retained by the broker-dealer in an appropriate file for a period of three years, subject to examination by the commissioner.

25302.  (a) No person shall publish any advertisement concerning any security in this state after the commissioner finds that the advertisement contains any statement that is false or misleading or omits to make any statement necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading and so notifies the person in writing.  Such notification may be given summarily without notice or hearing.  At any time after the issuance of a notification under this section, the person desiring to use the advertisement may in writing request that the order be rescinded.  Upon the receipt of such a written request, the matter shall be set down for hearing to commence within 15 business days after such receipt unless the person making the request consents to a later date.  After such hearing, which shall be conducted in accordance with the provisions of the Administrative Procedure Act, Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, the commissioner shall determine whether to affirm and continue or to rescind such order, and the commissioner shall have all the powers granted under such act.

   (b) This section does not apply to any advertisement for any security which is subject to the supervision, regulation or examination of any of the following:

   (1) The Insurance Commissioner.

   (2) The Commissioner of Financial Institutions.

   (3) The Public Utilities Commission.

   (4) The Office of Thrift Supervision.

   (5) The Comptroller of the Currency of the United States.

   (6) The Federal Deposit Insurance Corporation.

   (7) The Board of Governors of the Federal Reserve System.

FRAUDULENT AND PROHIBITED PRACTICES

CORPORATIONS CODE
SECTION 25400-25404

25400.  It is unlawful for any person, directly or indirectly, in this state:

   (a) For the purpose of creating a false or misleading appearance of active trading in any security or a false or misleading appearance with respect to the market for any security, (1) to effect any transaction in a security which involves no change in the beneficial ownership thereof, or (2) to enter an order or orders for the purchase of any security with the knowledge that an order or orders of substantially the same size, at substantially the same time and at substantially the same price, for the sale of any such security, has been or will be entered by or for the same or different parties, or (3) to enter an order or orders for the sale of any security with the knowledge that an order or orders of substantially the same size, at substantially the same time and at substantially the same price, for the purchase of any such security, has been or will be entered by or for the same or different parties.

   (b) To effect, alone or with one or more other persons, a series of transactions in any security creating actual or apparent active trading in such security or raising or depressing the price of such security, for the purpose of inducing the purchase or sale of such security by others.

   (c) If such person is a broker-dealer or other person selling or offering for sale or purchasing or offering to purchase the security, to induce the purchase or sale of any security by the circulation or dissemination of information to the effect that the price of any such security will or is likely to rise or fall because of market operations of any one or more persons conducted for the purpose of raising or depressing the price of such security.

   (d) If such person is a broker-dealer or other person selling or offering for sale or purchasing or offering to purchase the security, to make, for the purpose of inducing the purchase or sale of such security by others, any statement which was, at the time and in the light of the circumstances under which it was made, false or misleading with respect to any material fact, or which omitted to state any material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, and which he knew or had reasonable ground to believe was so false or misleading.   

(e) For a consideration, received directly or indirectly from a broker-dealer or other person selling or offering for sale or purchasing or offering to purchase the security, to induce the purchase or sale of any security by the circulation or dissemination of information to the effect that the price of such security will or is likely to rise or fall because of the market operations of any one or more persons conducted for the purpose of raising or depressing the price of such security.

25401.  It is unlawful for any person to offer or sell a security in this state or buy or offer to buy a security in this state by means of any written or oral communication which includes an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading.

25402.  It is unlawful for an issuer or any person who is an officer, director or controlling person of an issuer or any other person whose relationship to the issuer gives him access, directly or indirectly, to material information about the issuer not generally available to the public, to purchase or sell any security of the issuer in this state at a time when he knows material information about the issuer gained from such relationship which would significantly affect the market price of that security and which is not generally available to the public, and which he knows is not intended to be so available, unless he has reason to believe that the person selling to or buying from him is also in possession of the information.

25403.  (a) Every person who with knowledge directly or indirectly controls and induces any person to violate any provision of this division or any rule or order thereunder shall be deemed to be in violation of that provision, rule, or order to the same extent as the controlled and induced person.

   (b) Any person that knowingly provides substantial assistance to another person in violation of any provision of this division or any rule or order thereunder shall be deemed to be in violation of that provision, rule, or order to the same extent as the person to whom the assistance was provided.

   (c) It shall be unlawful for any person directly or indirectly to do any act or thing which would be unlawful for that person to do under any provision of this division or any rule or order thereunder through or by any other person.

   (d) Nothing in this section shall be construed to limit the power of the state to punish any person for any conduct which constitutes a crime under any other statute.

25404.  It is unlawful for any person to knowingly alter, destroy, mutilate, conceal, cover up, falsify, or make a false entry in any record, document, or tangible object with the intent to impede, obstruct, or influence the administration or enforcement of this division.

CIVIL LIABILITY

CORPORATIONS CODE
SECTION 25500-25510

25500.  Any person who willfully participates in any act or transaction in violation of Section 25400 shall be liable to any other person who purchases or sells any security at a price which was affected by such act or transaction for the damages sustained by the latter as a result of such act or transaction.  Such damages shall be the difference between the price at which such other person purchased or sold securities and the market value which such securities would have had at the time of his purchase or sale in the absence of such act or transaction, plus interest at the legal rate.

25501.  Any person who violates Section 25401 shall be liable to the person who purchases a security from him or sells a security to him, who may sue either for rescission or for damages (if the plaintiff or the defendant, as the case may be, no longer owns the security), unless the

defendant proves that the plaintiff knew the facts concerning the untruth or omission or that the defendant exercised reasonable care and did not know (or if he had exercised reasonable care would not have known) of the untruth or omission.  Upon rescission, a purchaser may recover the consideration paid for the security, plus interest at the legal rate, less the amount of any income received on the security, upon tender of the security.  Upon rescission, a seller may recover the security, upon tender of the consideration paid for the security plus interest at the legal rate, less the amount of any income received by the defendant on the security.  Damages recoverable under this section by a purchaser shall be an amount equal to the difference between (a) the price at which the security was bought plus interest at the legal rate from the date of purchase and (b) the value of the security at the time it was disposed of by the plaintiff plus the amount of any income received on the security by the plaintiff.  Damages recoverable under this section by a seller shall be an amount equal to the difference between (1) the value of the security at the time of the filing of the complaint plus the amount of any income received by the defendant on the security and (2) the price at which the security was sold plus interest at the legal rate from the date of sale.  Any tender specified in this section may be made at any time before entry of judgment.

25501.5.  (a) (1) A person who purchases a security from or sells a security to a broker-dealer that is required to be licensed and has not, at the time of the sale or purchase, applied for and secured from the commissioner a certificate under Part 3 (commencing with Section 25200), that is in effect at the time of the sale or purchase authorizing that broker-dealer to act in that capacity, may bring an action for rescission of the sale or purchase or, if the plaintiff or the defendant no longer owns the security, for damages.

  (2) Upon rescission and tender of the security, a purchaser may recover the consideration paid for the security plus interest at the legal rate, less the amount of any income received on the security.

   (3) Upon rescission and tender of the consideration paid for the security plus interest at the legal rate, a seller may recover the security plus the amount of any income received by the defendant on the security.

   (4) Damages recoverable under this section by a purchaser shall be an amount equal to the difference between the following:

   (A) The price at which the security was bought plus interest at the legal rate from the date of purchase.

   (B) The value of the security at the time it was disposed of by the plaintiff plus the amount of any income received on the security by the plaintiff.

   (5) Damages recoverable under this section by a seller shall be an amount equal to the difference between the following:

   (A) The value of the security at the time of the filing of the complaint plus the amount of any income received by the defendant on the security.

   (B) The price at which the security was sold plus interest at the legal rate from the date of sale.

   (6) A tender of a security or of consideration paid for a security plus interest pursuant to this section may be made at any time before entry of judgment.

   (b) The court, in its discretion, may award reasonable attorney's fees and costs to a prevailing plaintiff under this section.

25502.  Any person who violates Section 25402 shall be liable to the person who purchases a security from him or sells a security to him, for damages equal to the difference between the price at which such security was purchased or sold and the market value which such security would have had at the time of the purchase or sale if the information known to the defendant had been publicly disseminated prior to that time and a reasonable time had elapsed for the market to absorb the information, plus interest at the legal rate, unless the defendant proves that the plaintiff knew the information or that the plaintiff would have purchased or sold at the same price even if the information had been revealed to him.

25502.5.  (a) Any person other than the issuer who violates Section 25402 shall be liable to the issuer of the security purchased or sold in violation of Section 25402 for damages in an amount up to three times the difference between the price at which the security was purchased or sold and the market value which the security would have had at the time of the purchase or sale if the information known to the defendant had been publicly disseminated prior to that time and a reasonable time had elapsed for the market to absorb the information and shall be liable to the issuer of the security or to a person who institutes an action under this section in the right of the issuer of the security for reasonable costs and attorney's fees.

   (b) The amounts recoverable under this section by the issuer shall be reduced by any amount paid by the defendant in a proceeding brought by the Securities and Exchange Commission with respect to the same transaction or transactions under the federal Insider Trading Sanctions Act of 1984 (15 U.S.C.  Secs. 78a, 78c, 78o, 78t, 78u, and 78ff) or any other act regardless of whether the amount was paid pursuant to a judgment or settlement or paid before or after the filing of an action by the plaintiff against the defendant.  If a proceeding has been commenced by the Securities and Exchange Commission but has not been finally resolved, the court shall delay entering a judgment for the plaintiff under this section until that proceeding is resolved.

   (c) If any shareholder of an issuer alleges to the board that there has been a violation of this section, the board shall be required to consider the allegation in good faith, and if the allegation involves misconduct by any director, that director shall not be entitled to vote on any matter involving the allegation. However, that director may be counted in determining the presence of a quorum at a meeting of the board or a committee of the board.    (d) This section shall only apply to issuers who have total assets in excess of one million dollars ($1,000,000) and have a class of equity security held of record by 500 or more persons.

25503.  Any person who violates Section 25110, 25130 or 25133, or a condition of qualification under Chapter 2 (commencing with Section 25110) of this part, imposed pursuant to Section 25141, or an order suspending trading issued pursuant to Section 25219, shall be liable to any person acquiring from him the security sold in violation of such section, who may sue to recover the consideration he paid for such security with interest thereon at the legal rate, less the amount of any income received therefrom, upon the tender of such security, or for damages, if he no longer owns the security, or if the consideration given for the security is not capable of being returned.  Damages, if the plaintiff no longer owns the security, shall be equal to the difference between (a) his purchase price plus interest at the legal rate from the date of purchase and (b) the value of the security at the time it was disposed of by the plaintiff plus the amount of any income received therefrom by the plaintiff.    

Damages, if the consideration given for the security is not capable of being returned, shall be equal to the value of that consideration plus interest at the legal rate from the date of purchase, provided the security is tendered; and if the plaintiff no longer owns the security, damages in such case shall be equal to the difference between (a) the value of the consideration given for the security plus interest at the legal rate from the date of purchase and (b) the value of the security at the time it was disposed of by the plaintiff plus the amount of any income received therefrom by the plaintiff.  Any person who violates Section 25120 or a condition of qualification under Chapter 3 (commencing with Section 25120) of this part imposed pursuant to Section 25141, shall be liable to any person acquiring from him the security sold in violation of such section who may sue to recover the difference between (a) the value of the consideration received by the seller and (b) the value of the security at the time it was received by the buyer, with interest thereon at the legal rate from the date of purchase.  Any person on whose behalf an offering is made and any underwriter of the offering, whether on a best efforts or a firm commitment basis, shall be jointly and severally liable under this section, but in no event shall any underwriter (unless such underwriter shall have knowingly received from the issuer for acting as an underwriter some benefit, directly or indirectly, in which all other underwriters similarly situated did not share in proportion to their respective interest in the underwriting) be liable in any suit or suits authorized under this section for damages in excess of the total price at which the securities underwritten by him and distributed to the public were offered to the public.  Any tender specified in this section may be made at any time before entry of judgment.  No person shall be liable under this section for violation of Section 25110, 25120 or 25130 if the sale of the security is qualified prior to the payment or receipt of any part of the consideration for the security sold, even though an offer to sell or a contract of sale may have been made or entered into without qualification.

25504.  Every person who directly or indirectly controls a person liable under Section 25501 or 25503, every partner in a firm so liable, every principal executive officer or director of a corporation so liable, every person occupying a similar status or performing similar functions, every employee of a person so liable who materially aids in the act or transaction constituting the violation, and every broker-dealer or agent who materially aids in the act or transaction constituting the violation, are also liable jointly and severally with and to the same extent as such person, unless the other person who is so liable had no knowledge of or reasonable grounds to believe in the existence of the facts by reason of which the liability is alleged to exist.

25504.1.  Any person who materially assists in any violation of Section 25110, 25120, 25130, 25133, or 25401, or a condition of qualification under Chapter 2 (commencing with Section 25110) of Part 2 of this division imposed pursuant to Section 25141, or a condition of qualification under Chapter 3 (commencing with Section 25120) of Part 2 of this division imposed pursuant to Section 25141, or an order suspending trading issued pursuant to Section 25219, with intent to deceive or defraud, is jointly and severally liable with any other person liable under this chapter for such violation.

25504.2.  (a) Any accountant, engineer, appraiser, or other person whose profession gives authority to a statement made by such person, who pursuant to rule of the commissioner has given written consent to be and has been named in any prospectus or offering circular distributed in connection with the offer or sale of securities as having prepared or certified in such capacity either any part of such document or any written report or valuation which is distributed with or referred to in any such document is jointly and severally liable with any other person liable under Section 25501 if:

   (1) The part of such document so prepared or certified or the report or valuation so distributed or referred to includes an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; and

   (2) The person asserting such liability acquired a security described in such document in reliance on such untrue statement or in reliance on such part of the document or on such report or valuation without notice of such omission.

  (b) Notwithstanding the provisions of subdivision (a), no such accountant, engineer, appraiser, or other person shall be liable as provided therein if such person sustains the burden of proof that:

   (1) Such person had, after reasonable investigation, reasonable ground to believe and did believe, at the time such person consented to such use of such person's name, that the statements so included in such part of such document or in such report or valuation were true and that there was no omission to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or

   (2) Such part of such document did not fairly represent such person's statement as an expert or was not a fair copy of or extract from such person's report or valuation as an expert; or

   (3) Prior to the acquisition of the security by the person asserting the liability, such accountant, engineer, appraiser, or other person advised the issuer and the commissioner in writing that such person would not be responsible for such part of the document or the report or valuation.

   (c) A person who participates in the preparation of a document described in subdivision (a) of this section shall be deemed to have prepared or certified only those portions thereof which are expressly stated with such person's written consent to have been made on such person's authority.

25505.  A corporation which is liable under this chapter shall have a right of indemnification against any of its principal executive officers, directors, and controlling persons whose willful violation of any provision of this law gave rise to such liability.  All persons liable under this chapter shall have a right of contribution against all other persons similarly liable, based upon each person's proportionate share of the total liability, except that no person whose willful violation of any provision of this law has given rise to any liability shall have any right of contribution against any other person guilty merely of a negligent violation, and except that no principal executive officer, director, or controlling person whose willful violation has given rise to any liability shall have any right of contribution against the corporation to which he sustains that relationship.

25506.  (a) For proceedings commencing before January 1, 2005, no action shall be maintained to enforce any liability created under Section 25500, 25501, or 25502 (or Section 25504 or Section 25504.1 insofar as they related to those sections) unless brought before the expiration of four years after the act or transaction constituting the violation or the expiration of one year after the discovery by the plaintiff of the facts constituting the violation, whichever shall first expire.

   (b) For proceedings commencing on or after January 1, 2005, no action shall be maintained to enforce any liability created under Section 25500, 25501, or 25502 (or Section 25504 or Section 25504.1 insofar as they related to those sections) unless brought before the expiration of five years after the act or transaction constituting the violation or the expiration of two years after the discovery by the plaintiff of the facts constituting the violation, whichever shall first expire.

25506.1.  No action shall be maintained to enforce any liability created under Section 25504.2 unless brought within one year after the discovery of the facts constituting the violation, or after such discovery should have been made by the exercise of reasonable diligence.  In no event shall any such action be brought more than three years after the act or transaction constituting the violation.

25507.  (a) No action shall be maintained to enforce any liability created under Section 25503 (or Section 25504 or Section 25504.1 insofar as they relate to that section) unless brought before the expiration of two years after the violation upon which it is based or the expiration of one year after the discovery by the plaintiff of the facts constituting such violation, whichever shall first expire.

   (b) No buyer may commence an action under Section 25503 (or Section 25504 or Section 25504.1 insofar as they relate to that section) if, before suit is commenced, such buyer shall have received a written offer approved as to form by the commissioner (1) stating the respect in which liability under such section may have arisen, (2) offering to repurchase the security for a cash price payable upon delivery of the security or offering to pay the buyer an amount in cash equal in either case to the amount recoverable by the buyer in accordance with Section 25503, or, offering to rescind the transaction by putting the parties back in the same position as before the transaction, (3) providing that such offer may be accepted by the buyer at any time within a specified period of not less than 30 days after the date of receipt thereof unless rejected earlier during such period by the buyer, (4) setting forth the provisions of this subdivision (b), and (5) containing such other information as the commissioner may require by rule or order, and such buyer shall have failed to accept such offer in writing within the specified period after receipt thereof.

   (c) The commissioner may by rule or order impose as a condition to approval of an offer under subdivision (b) of this section, if the commissioner finds such action is necessary and appropriate for the protection of investors, conditions requiring:

   (1) That equivalent and concurrent offers be made to all investors as to whom liability may have arisen and still exists under Section 25503 (or Section 25504 or Section 25504.1 insofar as they relate to

that section) in connection with the distribution or transaction;

   (2) That the offer be made subject to a condition voiding such offer if the issuer, by reason of acceptances, is disabled from commencing or continuing business;

   (3) That the offer be made within a specified period after approval thereof by the commissioner;

   (4) If the consideration paid by the offeree was other than monetary or if the offer is of rescission, and if the offer is

rejected by the offeree on the ground that it does not accord him the damages payable under Section 25503 or that the rescission offered does not place the parties back in the same position as before the transaction, that an offer so rejected shall not bar the commencement of an action by the offeree under Section 25503 (or Section 25504 or Section 25504.1 insofar as they relate to that section); or

   (5) That the offeror file a report or reports with the commissioner containing such information as he may require concerning the making of the offer, its acceptance or rejection, and compliance with its terms and conditions or with conditions imposed under this subdivision.

   (d) Each person who files a repurchase offer with the commissioner pursuant to subdivision (b) shall file with the commissioner, in such form as the commissioner by rule prescribes, an irrevocable consent appointing the commissioner or the commissioner's successor in office to be such person's attorney to receive service of any lawful process in any noncriminal suit, action or proceeding against such person or such person's successor, executor or administrator, which arises under this law or any rule or order hereunder after the consent has been filed, with the same force and validity as if served personally on the person filing the consent.  A person who has filed such a consent in connection with a qualification under this law (or application for a permit under any prior law if the application under this law states that such consent is still effective) need not file another.  Service may be made by leaving a copy of the process in the office of the commissioner but it is not effective unless (1) the plaintiff, who may be the commissioner in a suit, action or proceeding instituted by him, forthwith sends notice of the service and a copy of the process by registered or certified mail to the defendant or respondent at such person's last address on file with the commissioner, and (2) the plaintiff's affidavit of compliance with this section is filed in the case on or before the return day of the process, if any, or within such further time as the court allows.

25508.  No action shall be maintained to enforce any right of indemnification or contribution created by Section 25505 unless brought before the expiration of one year after final judgment based upon the liability for which the right of indemnification or contribution exists.

25508.5.  In addition to any other rights provided for under this division, including, but not limited to, Sections 25501 and 25506, or otherwise, a person who purchases a viatical or life settlement contract or a fractionalized or pooled interest therein may rescind or cancel the purchase for any reason.  The person may rescind or cancel the purchase at any time before seven calendar days after the date the person remits the required consideration to the issuer or the issuer's agent by giving written notice of rescission or cancellation to the issuer or the issuer's agent.  No specific form is required for the rescission or cancellation.  The notice is effective when personally delivered, deposited in the United States mail, or deposited with a commercial courier or delivery service. The issuer shall refund all the person's money within seven calendar days after receiving the notice of rescission or cancellation.

25509.  Every cause of action under this chapter survives the death of any person who might have been a plaintiff or defendant.

25510.  Except as explicitly provided in this chapter, no civil liability in favor of any private party shall arise against any person by implication from or as a result of the violation of any provision of this law or any rule or order hereunder.  Nothing in this chapter shall limit any liability which may exist by virture of any other statute or under common law if this law were not in effect.

UNLAWFUL AND FRAUDULENT CONDUCT

CORPORATIONS CODE
SECTION 27100-27101

27100.  Any individual who, within this state, solicits, receives, collects, or solicits any subscription or contract to pay, any contributions, fees, funds, or compensation of any kind, from any owner or holder of any security, for the purpose of protecting, enforcing, or representing the rights of the security owners or holders evidenced by the security, shall be subject to the provisions of this division.

27101.  It is unlawful for any individual, directly or indirectly, in connection with the solicitation, receipt, or collection of, or solicitation of any subscription or contract to pay any contributions, fees, funds, or compensation of any kind, from any owner or holder of any security, for the purpose of protecting, enforcing, or representing the rights of the security owners or holders evidenced by the security, to do any of the following:

   (a) Employ any device, scheme, or artifice to defraud.    (b) By means of any written or oral communication, make any untrue statement of a material fact, or omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading.

   (c) Engage in any transaction, act, practice, or course of business which operates or would operate as a fraud or deceit upon any person.

   (d) Misappropriate or convert the funds, security, or property of any other person.

CIVIL LIABILITY AND CRIMES

CORPORATIONS CODE
SECTION 27200-27202

27200.  Every individual who solicits, receives, collects, or contracts for the payment of, any contributions, fees, funds, or compensation of any kind, in violation of this division, is civilly liable for the return of the full amount of that contribution, fee, or fund, together with reasonable attorney's fees.  This liability is both joint and several.

27201.  No action shall be maintained to enforce any liability created under Section 27200 unless brought before the expiration of two years after the violation upon which it is based or the expiration of one year after the discovery by the plaintiff of the facts constituting the violation, whichever shall first expire.

27202.  Every individual who willfully violates Section 27101 is guilty of a public offense punishable by a fine not exceeding two hundred fifty thousand dollars ($250,000), or by imprisonment in the state prison for two, three, or four years, or by both fine and imprisonment.

ENFORCEMENT

CORPORATIONS CODE
SECTION 28700-28715

28700.  For purposes of this chapter, unless the context otherwise requires:

   (a) "Office with a licensee" means the position of director, officer, or employee of the licensee or of any subsidiary of the licensee.

   (b) "Subject person," when used with respect to a licensee, means any of the following:

   (1) Any controlling person or affiliate of the licensee.

   (2) Any director, officer, or employee of the licensee or of any of the persons specified in paragraph (1).

   (3) Any other person who participates in the conduct of the business of the licensee.

28701.  Whenever it appears to the commissioner that any person has violated, or that there is reasonable cause to believe that any person may violate, any provision of this division or of any regulation or order issued under this division, the commissioner may bring an action in the name of the people of this state in the superior court to enjoin the violation or to enforce compliance with this division or with any regulation or order issued under this division.  Upon a proper showing, a restraining order, preliminary or permanent injunction, or writ of mandate shall be granted, and a receiver or a conservator may be appointed for the defendant or the defendant's assets.  The court may not require the commissioner to post a bond.

28702.  (a) If the commissioner finds that any person has violated, or that there is reasonable cause to believe that any person may violate, Section 28150, the commissioner may order the person to cease and desist from the violation unless and until the person is issued a license.

   (b) (1) Within 30 days after an order is issued pursuant to subdivision (a), the person to whom the order is directed may file with the commissioner an application for a hearing on the order.  If the commissioner fails to commence a hearing within 15 business days after the application is filed with him or her (or within any longer period to which the person consents), the order shall be deemed rescinded.  Upon the completion of the hearing, the commissioner shall affirm, modify, or rescind the order.

   (2) The right of any person to whom an order is issued under subdivision (a) to petition for judicial review of the order shall not be affected by the failure of the person to apply to the commissioner for a hearing on the order pursuant to paragraph (1).

28703.  The commissioner may issue a cease and desist order, including an order to take appropriate corrective action, if, after notice and a hearing, the commissioner finds either of the following:

   (a) That any licensee or any subject person of a licensee has violated, is violating, or that there is reasonable cause to believe that any licensee or any subject person of a licensee may violate, any provision of this division or of any regulation or order issued under this division or any provision of any other applicable law.

   (b) That any licensee or any subject person of a licensee has engaged or participated in, is engaging or participating in, or that there is reasonable cause to believe that any licensee or any subject person of a licensee may engage or participate in, any unsafe or unsound act with respect to the business of the licensee.

28704.  (a) The commissioner may issue a cease and desist order, including an order to take appropriate corrective action, if the commissioner finds both of the following:

   (1) That any of the factors set forth in Section 28703 is true with respect to any licensee or any subject person of a licensee.

   (2) That the action or violation is likely to cause the insolvency of, or substantial dissipation of the assets or earnings of, the licensee, or is likely to seriously weaken the condition of the licensee or otherwise to seriously prejudice the interests of the licensee or the accredited investors of the licensee, prior to the completion of proceedings conducted pursuant to Section 28703.

   (b) (1) Within 30 days after an order is issued pursuant to subdivision (a), any licensee or subject person of a licensee to whom the order is directed may file with the commissioner an application for a hearing on the order.  The filing of an application for a hearing shall not stay the effectiveness of the order.  If the commissioner fails to commence a hearing within 15 business days after the application is filed (or within any longer period to which the licensee or subject person consents), the order shall be deemed rescinded.  Upon the completion of the hearing, the commissioner shall affirm, modify, or rescind the order.

   (2) The right of any licensee or subject person of a licensee to whom an order is issued under subdivision (a) to petition for judicial review of the order shall not be affected by the failure of the licensee or subject person to apply to the commissioner for a hearing on the order pursuant to paragraph (1).

28705.  The commissioner may issue an order removing a subject person from that person's office with the licensee, if any, and prohibiting that person from further participating in any manner in the conduct of the business of the licensee, if, after notice and a hearing, the commissioner finds all of the following:

   (a) (1) That the subject person of a licensee has violated a provision of this division or of any regulation or order issued under this division or any provision of any other applicable law;

   (2) That the subject person of a licensee has engaged or participated in any unsafe or unsound act with respect to the business of the licensee; or

   (3) That the subject person of a licensee has engaged or participated in any act which constitutes a breach of his or her fiduciary duty as a subject person.

   (b) (1) That the act, violation, or breach of fiduciary duty has caused or is likely to cause substantial financial loss or other damage to the licensee or the accredited investors of the licensee;

or

   (2) That the act, violation, or breach of fiduciary duty has seriously prejudiced or is likely to seriously prejudice the interests of the licensee or the accredited investors of the licensee; or

   (3) That the subject person has received financial gain by reason of the act, violation, or breach of fiduciary duty.

   (c) That the act, violation, or breach of fiduciary duty either involves dishonesty on the part of the subject person or demonstrates the subject person's gross negligence with respect to the business of the licensee or a willful disregard for the safety and soundness of the licensee.

28706.  The commissioner may issue an order removing a subject person from his or her office, if any, with the licensee and prohibiting him or her from further participating in any manner in the conduct of the business of the licensee, except with the prior consent of the commissioner, if the commissioner finds, after notice and a hearing, that the subject person of a licensee has, by engaging or participating in any act with respect to any financial or other business institution which resulted in substantial financial loss or other damage, demonstrated either of the following:

   (a) Dishonesty.

   (b) Willful or continuing disregard for the safety and soundness of the financial or other business institution.

28707.  (a) The commissioner may issue an order suspending a subject person from his or her office, if any, with the licensee and prohibiting him or her from further participating in any manner in the conduct of the business of the licensee, except with the consent of the commissioner, if the commissioner finds both of the following:

   (1) That the factors set forth in subdivisions (a), (b), and (c) of Section 28705 or the factors set forth in subdivision (a) of Section 28706 are true with respect to the subject person of a licensee.

   (2) That it is necessary for the protection of the interests of the licensee or the accredited investors of the licensee, or for the protection of the public interest that the commissioner immediately suspend the subject person from his or her office, if any, with the licensee and prohibit him or her from further participating in any manner in the conduct of the business of the licensee.

   (b) (1) Within 30 days after an order is issued pursuant to subdivision (a), any subject person of a licensee to whom the order is directed may file with the commissioner an application for a hearing on the order.  The filing of an application for a hearing shall not stay the effectiveness of the order.  If the commissioner fails to begin a hearing within 15 business days after the application is filed (or within any longer period to which the subject person consents), the order shall be deemed rescinded.  Upon the completion of the hearing, the commissioner shall affirm, modify, or rescind the order.

   (2) The right of any subject person of a licensee to whom an order is issued under subdivision (a) to petition for judicial review of the order shall not be affected by the failure of the subject person to apply to the commissioner for a hearing on the order pursuant to paragraph (1).

28708.  (a) The commissioner may issue an order suspending a subject person from his or her office, if any, with the licensee and prohibiting him or her from further participating in any manner in the conduct of the business of the licensee, except with the consent of the commissioner, if the commissioner finds both of the following:

   (1) That the subject person of a licensee has been indicted by a grand jury for, or held to answer by a magistrate for, a crime involving dishonesty or breach of trust.

   (2) That the continuation of that person as a subject person of the licensee may threaten the interests of the licensee or the accredited investors of the licensee, or may threaten to impair public confidence in the licensee.

   (b) The commissioner may issue an order suspending or removing the subject person or former subject person from his or her office, if any, with the licensee and prohibiting him or her from further participating in any manner in the conduct of the business of the licensee, except with the prior consent of the commissioner, if the commissioner finds both of the following:

   (1) That the subject person or former subject person of a licensee to whom an order was issued pursuant to subdivision (a) or any other subject person of a licensee has been finally convicted of a crime which is punishable by imprisonment for a term exceeding one year and which involves dishonesty or breach of trust.

   (2) That the continuation or resumption by that person as a subject person of the licensee may threaten the interests of the licensee or the accredited investors of the licensee, or may threaten to impair public confidence in the licensee.

   (c) (1) Within 30 days after an order is issued pursuant to subdivision (a) or (b), any subject person of a licensee to whom the order is directed may file with the commissioner an application for a hearing on the order.  If the commissioner fails to commence a hearing within 15 business days after the application is filed (or within any longer period to which the subject person consents), the order shall be deemed rescinded.  Upon the completion of the hearing, the commissioner shall affirm, modify, or rescind the order.

   (2) The right of any subject person or former subject person of a licensee to whom an order is issued under subdivision (a) or (b) to petition for judicial review of the order shall not be affected by the failure of the person to apply to the commissioner for a hearing on the order pursuant to paragraph (1).

  (d) The fact that any subject person of a licensee charged with a crime involving dishonesty or breach of trust is not finally convicted of the crime shall not preclude the commissioner from issuing an order to the subject person pursuant to any other section of this division.

28709.  Any person to whom an order is issued under Section 28705, 28706, 28707, or 28708 may apply to the commissioner to modify or rescind the order.  The commissioner shall not grant the application unless the commissioner finds that it is in the public interest to do so and that it is reasonable to believe that the person will, if and when he or she becomes a subject person of a licensee, comply with all applicable provisions of this division and of any regulation or order issued under this division.

28710.  The commissioner may issue an order suspending or revoking the license of a licensee, if, after notice and a hearing, the commissioner finds any of the following:    (a) That the licensee or any controlling person or affiliate of the licensee has violated any provision of this division or of any regulation or order issued under this division or any provision of any other applicable law.

   (b) That the licensee is conducting its business in an unsafe and unsound manner.

   (c) That the licensee is in a condition that it is unsafe or unsound for it to transact business.

   (d) That the licensee has ceased to transact business as a capital access company.

   (e) That the licensee is insolvent.

   (f) That the licensee has suspended payment of its obligations, has made an assignment for the benefit of its creditors, or has admitted in writing its inability to pay its debts as they become due.

   (g) That the licensee has applied for an adjudication of bankruptcy, reorganization, arrangement, or other relief under any bankruptcy, reorganization, insolvency, or moratorium law, or that any person has applied for any of that relief under any of those laws against any licensee and the licensee has by any affirmative act approved of or consented to the action or the relief has been granted.

   (h) That any fact or condition exists which, if it had existed at the time when any licensee applied for its license, would have been grounds for denying the application.

28711.  (a) If the commissioner finds that any of the factors set forth in Section 28709 is true with respect to any licensee and that it is necessary for the protection of the public interest that the commissioner immediately suspend or revoke the license of the licensee, the commissioner may issue an order suspending or revoking the license of the licensee.

   (b) Within 30 days after an order is issued pursuant to subdivision (a), any licensee to whom the order is directed may file with the commissioner a request for a hearing on the order.  If the commissioner fails to commence a hearing within 15 business days after the request is filed (or within any longer period to which the licensee consents), the order shall be deemed rescinded.  Upon the completion of the hearing, the commissioner shall affirm, modify, or rescind the order.

28712.  Any person whose license is suspended or revoked shall immediately deliver the license to the commissioner.

28713.  Any person to whom an order is issued under Section 28709 or 28710 may apply to the commissioner to modify or rescind the order.

   The commissioner shall not grant the application unless the commissioner finds that it is in the public interest to do so and that it is reasonable to believe that the person will, if and when it becomes a licensee, comply with all applicable provisions of this division and of any regulation or order issued under this division.

28714.  (a) If the commissioner finds that any of the factors set forth in Section 28709 is true with respect to any licensee and that it is necessary for the protection of the interests of the licensee or the accredited investors of the licensee, or for the protection of the public interest that the commissioner take immediate possession of the property and business of the licensee, the commissioner may forthwith take possession of the property and business of the licensee and retain possession until the licensee resumes business or is finally liquidated.  The licensee may, with the consent of the commissioner, resume business upon any conditions that the commissioner may prescribe.

   (b) Whenever the commissioner takes possession of the property and business of a licensee pursuant to subdivision (a), the licensee may apply within 10 days to the superior court in the county in which the head office of the licensee is located to enjoin further proceedings.  The court, after citing the commissioner to show cause why further proceedings should not be enjoined and after a hearing, may dismiss the application or enjoin the commissioner from further proceedings and order the commissioner to surrender the property and business of the licensee to the licensee or make any further order that may be just.

   (c) An appeal may be taken from the judgment of the superior court by the commissioner or by the licensee in the manner provided by law for appeals from the judgment of a superior court.  An appeal from the judgment of the superior court shall operate as a stay of the judgment.  No bond need be given if the appeal is taken by the commissioner, but if the appeal is taken by the licensee, a bond shall be given as required by the Code of Civil Procedure.

   (d) Whenever the commissioner takes possession of the property and business of a licensee pursuant to subdivision (a), the commissioner shall conserve or liquidate the property and business of the licensee.

28715.  Sections 11041, 11042, and 11043 of the Government Code do not apply to the Commissioner of Corporations.

CRIMES AND CRIMINAL PENALTIES

 

GENERAL PROVISIONS

CORPORATIONS CODE
SECTION 28800-28802

28800.  It shall be unlawful for any person willfully to make any untrue statement of a material fact in any application, report, or other document filed with the commissioner under this division or under any regulation or order issued under this division, or willfully to omit to state in any application, report or other document filed with the commissioner under this division any material fact which is required to be stated therein.

28801.  It shall be unlawful for any person having custody of any of the books, accounts, or other records of a licensee willfully to refuse to allow the commissioner, upon request, to inspect or make copies of any of those books, accounts, or other records.

28802.  It shall be unlawful for any person, with intent to deceive any director, officer, employee, auditor, or attorney of a licensee, the commissioner or any governmental agency, to make any false entry in any of the books, accounts or other records of the licensee, to omit to make any entry in those books, accounts or other records which the person is required to make, or to alter, conceal, or destroy any of those books, accounts, or other records.

CRIMINAL PENALTIES

CORPORATIONS CODE
SECTION 28880-28881

28880.  Any person who willfully violates any provision under this chapter shall upon conviction be fined not more than two hundred fifty thousand dollars ($250,000) or be imprisoned in the state

prison, or in a county jail for not more than one year, or be punished by both that fine and imprisonment.

28881.  Nothing in this division limits the power of the state to punish any person for any act which constitutes a crime under any statute.

CIVIL PENALTIES

CORPORATIONS CODE
SECTION 28900-28901

28900.  If, after notice and a hearing, the commissioner finds that any person has violated any provision of this division or of any regulation or order issued under this division, the commissioner may order the person to pay to the commissioner a civil penalty in that amount as the commissioner may specify.  However, the amount of the civil penalty shall not exceed two thousand five hundred dollars ($2,500) for each violation, or in the case of a continuing violation, two thousand five hundred dollars ($2,500) for each day for which the violation continues.

28901.  The provisions of Section 28900 are additional to, and not alternative to, other provisions of this division which authorize the commissioner to issue orders or to take other action on account of a violation of any provision of this division or of any regulation or order issued under this division.  However, no person who has been finally convicted under Chapter 12 (commencing with Section 28800) of this division on account of a violation of any provision of Chapter 12 (commencing with Section 28800) shall be liable to pay a civil penalty under Section 28900 on account of the violation.

BUCKET SHOP LAW

 

DEFINITIONS

CORPORATIONS CODE
SECTION 29000-29008

29000.  Unless the provision or the context otherwise requires, the definitions set forth in this chapter govern the construction of this division.

29001.  "Person" means an individual, partnership, corporation, limited liability company, or association, either domestic or foreign, whether acting in his or her own right or as the officer, agent, servant, employee, correspondent, or representative of another or as trustee.

29002.  (a) "Trustee" means a person executing a trust, as defined in this section.

   (b) "Trust" means any voluntary trust expressly created by or declared in an instrument in writing, other than a will or a judicial writ, order, decree, or judgment, to carry on any business or to secure the payment or repayment of money.

29003.  "Contract" includes any agreement, trade, or transaction.

29004.  "Securities" means all shares in any corporation or association or of trustees, bonds, coupons, scrip, rights, choses in action, and other evidences of debt or property and options for the purchase or sale thereof or of any right entitling the holder thereof to participate in profits or a division of assets.

29005.  "Commodities" means anything movable that is bought and sold.

29006.  "Bucket shop" means any room, office, store, building, or other place where any bucketing or bucket shopping contract is made or offered to be made.

29007.  "Keeper" means any person owning, keeping, managing, operating, or promoting a bucket shop, or assisting to keep, manage, operate, or promote a bucket shop.

29008.  "Bucketing" or "bucket shopping" means any of the following:

   (a) Making or offering to make any contract respecting the purchase or sale of any securities or commodities, wherein both parties intend, or the keeper intends, that the contract shall be, or may be, terminated, closed, or settled according to or upon the basis of the public market quotations of prices made on any board of trade or exchange upon which the securities or commodities are dealt in, without a bona fide purchase or sale of the securities or commodities.

   (b) Making or offering to make any contract respecting the purchase or sale of any securities or commodities, wherein both parties intend, or the keeper intends, that the contract shall be, or may be, deemed terminated, closed, or settled when the public market quotations of prices for the securities or commodities named in the contract reach a certain figure without a bona fide purchase or sale of the securities or commodities.

   (c) Making or offering to make any contract respecting the purchase or sale of any securities or commodities, wherein both parties do not intend, or such keeper does not intend, the actual or bona fide receipt or delivery of the securities or commodities, but do intend, or the keeper does intend, a settlement of the contract based upon the differences in the public market quotations of prices at which the securities or commodities are or are asserted to be bought and sold.

   (d) The sale by a keeper of any security or commodity purchased by him for the account of or upon the order of another when the proceeds of the sale are not immediately credited by the keeper to the account of the other person and when a report or statement in writing of the sale is not rendered to the other person by the keeper on the next business day following the sale.

PROHIBITED ACTIVITIES

CORPORATIONS CODE
SECTION 29100-29104

29100.  Any person who makes or offers to make any contract constituting bucketing under Section 29008, or who makes any sale constituting bucketing under Section 29008, or who is the keeper of any bucket shop, is guilty of a felony.

29101.  Any person who communicates, receives, exhibits, or displays in any manner any statement of quotations of prices of any securities or commodities, with an intent to make, or to offer to make, or to aid in making or offering to make, any contract constituting bucketing under Section 29008 is guilty of a felony.

29102.  The felonies specified in this chapter are punishable, for each offense, if the offender is a corporation, by a fine of not less than one thousand dollars ($1,000) nor more than ten thousand dollars ($10,000) or, if the offender is not a corporation, by imprisonment in a state prison or by a fine of not less than one thousand dollars ($1,000) nor more than ten thousand dollars ($10,000), or by both such imprisonment and fine.

29103.  The prosecution, conviction, and punishment of a corporation under any provision of this chapter shall not be deemed to be a prosecution, conviction, or punishment of any of its officers, directors, or shareholders.

29104.  All contracts for the purchase or sale of shares of the capital stock of any corporation or association without any intention on the part of one party to deliver and of the other party to receive the shares, and contemplating merely the payment of differences between the contract and market prices on divers days, shall be void, and neither party to any such contract shall be entitled to recover any damages for failure to perform the same, or any money paid the reon, in any court of this state.

COMMODITIES

DEFINITIONS

CORPORATIONS CODE
SECTION 29500-29516

29500.  This division shall be known and may be cited as the "California Commodity Law of 1990."  References herein to "this law" refer to the applicable provisions of this division unless the context otherwise requires.  The definitions in this chapter govern the construction of this law.

29501.  "Board of trade" means any person or group of persons engaged in buying or selling any commodity or receiving the same for sale on consignment, whether the person or group of persons is characterized as a board of trade, exchange, or other form of marketplace.

29502.  "Business days" are all days other than every Saturday, every Sunday and such other days as are specified or provided for as holidays in the Government Code.

29503.  "Commissioner" means the Commissioner of Corporations.

29504.  "Commodity" means, except as otherwise specified by the commissioner by rule or order, any agricultural, grain, or livestock product or byproduct, any metal or mineral (including a precious metal set forth in Section 29515), any gem or gemstone (whether characterized as precious, semiprecious, or otherwise), any fuel (whether liquid, gaseous, or otherwise), any foreign currency, and all other goods, articles, products, or items of any kind.  However, the term "commodity" shall not include (a) a numismatic coin whose fair market value is at least 15 percent higher than the value of the metal it contains, or (b) any work of art offered or sold by art dealers, at public auction, or through a private sale by the owner of the work of art.

29505.  (a) "Commodity contract" means any account, agreement, or contract for the purchase or sale, primarily for speculation or investment purposes and not for use or consumption by the offeree or purchaser, of one or more commodities, whether for immediate or subsequent delivery or whether delivery is intended by the parties, and whether characterized as a cash contract, deferred shipment or deferred delivery contract, forward contract, futures contract, installment or margin contract, leverage contract, or otherwise.  A "commodity contract" includes a commodity option as defined in Section 29510, unless otherwise specified.  Any "commodity contract" offered or sold shall, in the absence of evidence to the contrary, be presumed to be offered or sold for speculation or investment purposes.

   (b) A "commodity contract" shall not include any contract or agreement which requires, and under which the purchaser personally receives, or  at the request of the purchaser a family member or an individual (which individual is other than the seller or any affiliate of the seller, including any officer, director, or employee of the seller or any affiliate of the seller) with whom the purchaser has a preexisting close personal or preexisting business relationship personally receives, within 28 calendar days from the full payment in good funds of the purchase price, actual physical delivery of the quantity of each commodity purchased under the contract or agreement.  In the case of a seller who requires a partial payment of the total purchase price before obligating itself to actually physically deliver the quantity of each commodity purchased under the contract or agreement described in this subdivision, both the amount remaining on the total purchase price shall be paid in good funds and actual physical delivery of the quantity of each commodity purchased under the contract or agreement shall be personally received (by the purchaser or above-described individual) within 28 calendar days from the date of the partial payment in good funds.  Otherwise, for the purposes of this exclusion from the definition of a "commodity contract," a partial payment of, or an installment payment on, the purchase price is not a full payment in good funds of the purchase price.

29506.  "Commodity Exchange Act" means the federal statute so named, as amended before or after January 1, 1991.

29507.  "Commodity Futures Trading Commission" means the independent regulatory agency established by Congress to administer the Commodity Exchange Act.

29508.  "CFTC Rule" means any rule, regulation, or order of the Commodity Futures Trading Commission in effect on January 1, 1991, and all subsequent amendments, additions, or other revisions thereto, unless the commissioner, within 10 days following the effective date of any amendment, addition, or revision, disallows the application thereof to this law or to any provision thereof by rule or order.

29509.  "Commodity merchant" means any of the following, as defined or described in the Commodity Exchange Act or by CFTC Rule:

   (a) Futures commission merchant.

   (b) Commodity pool operator.

   (c) Commodity trading advisor.

   (d) Introducing broker.

   (e) Leverage transaction merchant.

   (f) An associated person of any person specified in subdivisions (a) to (d), inclusive.

   (g) Floor broker.

   (h) Any other person (other than a futures association) required to register with the Commodity Futures Trading Commission.

29510.  "Commodity option" means any account, agreement, or contract giving a party thereto the right but not the obligation to purchase or sell one or more commodities or one or more commodity contracts, or both, whether characterized as an option, privilege, indemnity, bid, offer, put, call, advance guaranty, decline guaranty, or otherwise, but shall not include an option traded on a national securities exchange registered with the United States Securities and Exchange Commission.

29511.  "Financial institution" means (a) a national bank or a bank or trust company incorporated under the laws of this state, (b) a federal savings and loan  association or federal savings bank, or (c) a federally insured bank chartered by a state of the United States when the commodity depository activities of the bank are supervised by the bank regulator of that state.

29512.  "Good funds" means the verified receipt of immediately available funds according to the applicable requirements of federal Regulation CC.

29513.  "Offer" includes every offer to sell, offer to purchase, or offer to enter into a commodity contract or commodity option.

29514.  "Person" means an individual, a corporation, a partnership, a limited liability company, an association, a joint stock company, a trust, an unincorporated organization, a government, or a political subdivision of a government.

29515.  "Precious metal" means the following in either coin, bullion, or other form:

   (a) Silver.

   (b) Gold.

   (c) Platinum.

   (d) Palladium.

   (e) Copper.

   (f) Other items that the commissioner may specify by rule or order.

29515.5.  "Purchase price" means all funds paid by or on behalf of a purchaser to a seller of a commodity contract or a commodity option (or to another person at the request or direction of a seller), including, but not limited to, the sale price of a commodity, an administrative charge or fee, assessment, deposit, dues, handling charge or fee, holding charge or fee, membership charge or fee, reservation charge or fee, or any charge, fee, or other payment made or paid in connection with the sale of a commodity contract or a commodity option.

29516.  "Sale" or "sell" includes every sale, contract of sale, contract to sell, or disposition, for value.

UNLAWFUL COMMODITY TRANSACTIONS

CORPORATIONS CODE
SECTION 29520

29520.  Except as otherwise provided in Section 29530, 29531, or 29532, no person shall sell or purchase or offer to sell or purchase any commodity under any commodity contract or under any commodity option, or offer to enter into, or enter into, as seller or purchaser any commodity contract or any commodity option.

UNLAWFUL ACTIVITIES AND FRAUDULENT CONDUCT

CORPORATIONS CODE
SECTION 29535-29537

29535.  (a) No person shall engage in a trade or business or otherwise act as  a commodity merchant unless the person (1) is registered or temporarily licensed with the Commodity Futures Trading Commission for each activity constituting that person as a commodity merchant and the registration or temporary license shall not have expired, been suspended, or revoked; or (2) is exempt from the registration by virtue of the Commodity Exchange Act (7 U.S.C. Sec. 1 et seq.) or of  a CFTC rule.

   (b) No board of trade shall trade, or provide a place for the trading of, any commodity contract required to be traded on or subject to the rules of a contract market designated by the Commodity Futures Trading Commission, unless the board of trade has been so designated for the commodity contract and that designation shall not have been vacated, suspended, or revoked. 

29536.  It is unlawful for any person, directly or indirectly, in connection with the purchase or sale of, the offer to sell, the offer to purchase, the offer to enter into, or the entry into, a commodity, commodity contract, or commodity option to do any of the following:

  (a) To willfully employ any device, scheme, or artifice to defraud.

   (b) To willfully make any false report, enter any false record, make any untrue statement of a material fact, or omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading.

   (c) To willfully engage in any transaction, act, practice, or course of business which operates or would operate as a fraud or deceit upon any persons.

   (d) To willfully misappropriate or convert the funds, security, or property of any other person.

29537.  (a) Sections 29520, 29535, and 29536 apply to persons who sell or offer to sell when either of the following occur:    (1) An offer to sell is made in this state.    (2) An offer to buy is made and accepted in this state.

   (b) Sections 29520, 29535, and 29536 apply to persons who buy or offer to buy when either of the following occur:

   (1) An offer to buy is made in this state.

   (2) An offer to sell is made and accepted in this state.

   (c) For the purpose of this section, an offer to sell or to buy is made in this state, whether or not either party is then present in this state, when the offer:

   (1) Originates from this state.

   (2) Is directed by the offeror to this state and received at the place to which it is directed (or at any post office in this state in the case of a mailed offer).

   (d) For the purpose of this section, an offer to buy or to sell is accepted in this state when acceptance:

   (1) Is communicated to the offeror in this state.

   (2) Has not previously been communicated to the offeror, orally or in writing, outside this state.  Acceptance is communicated to the offeror in this state, whether or not either party is then present in this state, when the offeree directs it to the offeror in this state, reasonably believing the offeror to be in this state and it is received at the place to which it is directed (or at any post office in this state in the case of a mailed acceptance).

   (e) An offer to sell or to buy is not made in this state when either of the following occur:

   (1) The publisher circulates or there is circulated on his or her behalf in this state any bona fide newspaper or other publication of general, regular, and paid circulation which is not published in this state, or which is published in this state but has had more than two-thirds of its circulation outside this state during the past 12 months.

   (2) A radio or television program originating outside this state is received in this state.

CRIMES AND CIVIL LIABILITY

CORPORATIONS CODE
SECTION 29550-29555

29550.  (a) Except as provided in subdivision (b), any person who willfully violates any provision of this law, or who willfully violates any rule or order under this law, shall upon conviction be fined not more than two hundred fifty thousand dollars ($250,000) or imprisoned in the state prison or in a county jail for not more than one year, or be punished by both a fine and imprisonment; but no person may be imprisoned for the violation of any rule or order if that person proves that he or she had no knowledge of the rule or order.

   (b) Any person who willfully violates Section 29536 shall upon conviction be fined not more than two hundred fifty thousand dollars ($250,000), or imprisoned in the state prison for two, three, or four years, or be punished by both a fine and imprisonment.

   (c) One-half of the fines collected under this section shall be paid to the State Corporations Fund to be used for the support of this division.  The remainder of the fines collected under this section shall be paid to the state or local agency which brought the criminal prosecution.

29551.  Nothing in this law limits the power of the state to punish any person for any conduct which constitutes a crime under any other statute.

29552.  Any person who materially assists in any violation of this law, or any rule or order of the commissioner under this law, is jointly and severally liable with any other person liable under this law for the violation.

29553.  No action shall be maintained to enforce any  liability under Section 29552 unless brought before the expiration of four years after the act or transaction constituting the violation or within one year after the discovery by the plaintiff of the facts constituting the violation, whichever occurs last. 29554.  Every cause of action under this law survives the death of any person who might have been a plaintiff or defendant.

29555.  Except as explicitly provided in this law, no civil liability in favor of any private party shall arise against any person by implication from, or as a result of, the violation of any provision of this law or any rule or order under this law.  Nothing in this law shall limit any liability which may exist by virtue of any other statute or under common law if this law were not in effect.


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The above is not the complete act. This page contains only certain sections of the statute which we believe you may find informative. We do not and cannot guarantee the above sections are current law in this state. Legislatures may enact revised statutes at any time. Moreover these sections are presented for informational purposes only and are presented "as is" with all faults and with no warranties or guarantees as to the accuracy. Further, The content on these pages are not offered or intended to be legal advice by this firm for any purpose or manner whatsoever. If you require the current and complete version of the Law in your state, you should visit the Legislature home page of the particular state for more information or contact an attorney for advice on obtaining such information.

 
 
 
 

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