Fraudulent And Prohibited Practices - Corporate Securities Law Of 1968 - CA Corporations

Section § 25400

This law makes it illegal for anyone in California to manipulate the stock market or securities in various ways. For instance, it stops people from creating fake trades to make it look like a stock is being actively traded or to show false price changes. This includes executing trades just for show, spreading misleading information about stock prices, and making false statements to persuade others to buy or sell. Brokers and others in the securities business aren't allowed to take money to promote false information about stock prices either.

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.

false trading market manipulation misleading appearance active trading stock prices inducing transactions broker-dealer misconduct false information misleading statements material fact omission circulating information securities trading price manipulation California securities law

(Added by Stats. 1968, Ch. 88.)

Section § 25401

This law makes it illegal to sell or buy securities in California through any communication that contains false statements or fails to include important information, which would make the other statements misleading. In other words, you must be completely honest and transparent about the facts when dealing with securities.

It is unlawful for any person to offer or sell a security in this state, or to buy or offer to buy a security in this state, 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 the light of the circumstances under which the statements were made, not misleading.

securities untrue statement material fact misleading communication offer or sell buy or offer to buy false statements omission investment fraud truthful disclosure oral communication written communication financial transactions transparency requirements legal compliance

(Amended by Stats. 2015, Ch. 190, Sec. 19. (AB 1517) Effective January 1, 2016.)

Section § 25402

This law makes it illegal for certain people with insider knowledge about a company that isn’t public to buy or sell that company’s stock if that information could affect the stock’s price and the public doesn’t know about it. The rule applies not just to company leaders like officers or directors, but anyone connected to the company with access to such information.

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.

insider trading material information market price non-public information issuer securities officer director controlling person access to information unlawful purchase or sale California securities

(Added by Stats. 1968, Ch. 88.)

Section § 25403

This law says that if you knowingly control or help someone else break the rules in this section, you're also breaking the law, just as much as they are. It's also illegal to do something indirectly through another person if it's something you wouldn't be allowed to do directly. However, this section doesn't stop the state from punishing someone under other criminal laws if necessary.

(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.

control and induce violation substantial assistance unlawful acts provision violation indirect control assisting violation criminal conduct state punishment other statute crimes rule violation

(Added by Stats. 1998, Ch. 391, Sec. 12. Effective January 1, 1999.)

Section § 25404

This law makes it illegal for someone to intentionally change, destroy, hide, or fake any record or document to hinder enforcement actions. It also prohibits knowingly lying to the commissioner during license applications or investigations to cause obstruction.

(a) 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.

(b) It is unlawful for any person to knowingly make an untrue statement to the commissioner during the course of licensing, investigation, or examination, with the intent to impede, obstruct, or influence the administration or enforcement of any provision of this division.

alter records destroy documents conceal records falsify documents false entry impede enforcement obstruct administration influence investigation untrue statements commissioner licensing process investigation obstruction document falsification record tampering

(Amended by Stats. 2007, Ch. 101, Sec. 5. Effective January 1, 2008.)