People often think of New York as the financial center of America, but you can buy and sell securities anywhere. Even people here in California can get rich off of Wall Street. There are federal rules concerning the trade that you have to abide by, and most people know that the SEC oversees the enforcement of those rules. However, some might not know that California has its own standards that you must comply with. These are under the Corporations Code.
The SEC has a code on insider trading, but California has its own relevant law. This is California Code, Corporations Code CORP section 25402. It states that certain people may not buy or sell a company’s securities within California when they know it will affect the security’s price when they have information about a company that the public doesn’t. These people are an issuer of a security or anyone working for the issuer as a director, officer, controlling person, or anyone else with a relationship with the issuer that gives them access to information about the company that isn’t generally available. Basically, anyone who is in a position to know the corporation’s private workings shouldn’t sell their stock until the public discovers the insider information.
Misleading Others To Sell Securities
California Corporations Code section 25400 deals with actual fraud. It forbids:
- Buying or selling securities with the intent of making a security look like a better or worse buy than it is.
- Placing orders with the same intent as above.
- Placing orders in bulk with the same intent as above.
- Broker-dealers from getting people to buy or sell securities by spreading rumors about the stock changing price because of other people buying and selling that security.
- Broker-dealers from making statements that are, under the circumstances that they are being made, misleading and false to people in order to get others to buy or sell certain securities.
- Anyone who is paid, directly or indirectly, by a broker-dealer to get folks to buy or sell a security by saying the security’s price will move because of the buying or selling of somebody else.
California takes these rules seriously. A convicted defendant can be charged up to $10,000,000, and can spend 2, 3, or 5 years in prison. If you are the issuer of the security and you are convicted of either statute, you could be fined up to $25,000,000.
All of these statutes assume that everyone knows what securities fraud is, and that they know the real circumstances behind the securities they are selling. If you can prove that you didn’t know that what you were telling a client wasn’t true at the time that you were telling them, you might get off. It can be slightly easier to prove that the statements weren’t a big deal. A prosecutor will also have to prove that you intended to defraud people when you, say, placed a huge order for a penny stock that nobody else looking at the company would have placed. These are hard to prove, of course, and every case is different. A defendant in a securities fraud case will want a lawyer who specializes in this type of case and who has plenty of relevant experience.
Aiman-Smith & Marcy is a boutique firm in Oakland, California and specializes in securities fraud cases, as well as employment law, consumer fraud and class-actions.