6.5.1 California State Securities Laws

Notes, bonds, and evidences of indebtedness issued by public agencies fall under the broad definition of “security” in California Corporations Code Section 25019. Such securities are exempt from the qualification requirements of the Corporate Securities Law of 1968 pursuant to California Corporations Code Section 25100(a). California Corporations Code Section 25401 (Section 25401), however, states the following:

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

False or misleading disclosure may, in addition, lead to breach of contract claims. Securities offerings and sales in California are also subject to general statutory and common law rules prohibiting fraud. California Corporations Code Section 25540, moreover, provides for fines or imprisonment for any person who willfully violates Section 25401.