Fractional Interest In Local Agency Obligations - - CA Government

Section § 5950

This section defines important terms used in the chapter. An 'accredited investor' and 'qualified institutional buyer' are defined by federal securities laws. The location phrase 'in this state,' the entities making offerings ('issuers'), and what 'issuer transaction' means are specified under California law. 'Knowingly' refers to knowledge about the consent of a local agency concerning the sale of securities and does not need specific intent to violate the law. 'Local agency' includes various public entities like cities and counties. The terms 'person,' 'sale,' 'sell,' 'offer,' and 'security' follow definitions from the California Corporations Code. Two major federal acts, the Securities Act of 1933 and the Investment Company Act of 1940, are also part of this framework.

As used in this chapter:

(a) “Accredited investor” has the meaning specified in Rule 501 of the Securities Act of 1933.

(b) “In this state” has the meaning specified in Section 25008 of the Corporations Code.

(d) “Issuer transaction” means any transaction 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 security constituting a fractional interest in a lease, installment sale, or other obligation of a local agency involved in the transaction will be received indirectly by the issuer. An offer or sale that involves both an issuer transaction and a transaction that is not an issuer transaction shall be treated as separate transactions.

(e) “Knowingly” means that a person, with respect to an offer or sale of a security constituting a fractional interest in a lease, installment sale, or other obligation of a local agency, does any of the following:

(1) Has actual knowledge that the local agency has not consented to the offer or sale of such security.

(2) Acts in deliberate ignorance of whether or not the local agency has consented to the offer or sale of that security.

(3) Acts in reckless disregard of whether or not the local agency has consented to the offer or sale of that security.

Proof of specific intent to violate Section 5951 is not required.

(f) “Local agency” means a city, county, city and county, school district, special district, public corporation, or other public entity of this state.

(g) “Person” has the meaning specified in Section 25013 of the Corporations Code.

(h) “Qualified institutional buyer” has the meaning specified in Rule 144A of the Securities Act of 1933.

(i) “Sale,” “sell,” “offer,” and “offer to sell” have the respective meanings specified in Section 25017 of the Corporations Code.

(j) “Security” has the meaning specified in Section 25019 of the Corporations Code.

(k) “Securities Act of 1933” and “Investment Company Act of 1940” means the federal statutes of those names as amended before or after the effective date of this chapter.

accredited investor qualified institutional buyer issuer transaction local agency consent of local agency fractional interest in lease securities offer reckless disregard Corporations Code definitions Securities Act of 1933 Investment Company Act of 1940 public entity actual knowledge federal securities laws California law definitions

(Added by Stats. 1994, Ch. 972, Sec. 3. Effective September 29, 1994.)

Section § 5951

This law makes it illegal to sell or offer to sell a fraction of a financial interest in a local government agency's lease, installment sale, or similar obligation in California without first getting written approval from the agency involved. However, there are exceptions. These exceptions include securities issued before October 2, 1993, those that are part of specific registered investment trusts or companies, those registered under the Securities Act of 1933, transactions already in compliance, transactions exclusively between financial institutions, those part of financing involving the local agency, and sales to qualified institutional buyers or accredited investors. Additionally, securities issued before this law was effective and fitting certain criteria also fall outside these restrictions.

It is unlawful for any person to offer or sell in an issuer transaction in this state, or otherwise knowingly to offer or sell in this state, any security constituting a fractional interest in a lease, installment sale, or other obligation of a local agency without obtaining the prior written consent of that local agency to that offer or sale. However, this section shall not apply to any of the following:

(a) Any security that constitutes a fractional interest in a lease, installment sale, or other obligation of a local agency and that was first issued and sold prior to October 2, 1993.

(b) Offers or sales of shares or interests in any registered unit investment trust or management company, each as defined in the Investment Company Act of 1940.

(c) Any security that constitutes a fractional interest in a lease, installment sale, or other obligation of a local agency and that is registered under the Securities Act of 1933.

(d) Offers or sales of any security described in this section subsequent to an offer or sale of that security in compliance with this section.

(e) Offers or sales of participation interests between financial institutions.

(f) Any security that constitutes a fractional interest in a lease, installment sale, or other obligation of a local agency and that is created concurrently with, and as an integral part of, a financing to which the local agency is a party.

(g) Offers or sales of any security that constitutes a fractional interest in a lease, installment sale, or other obligation of a local agency made solely to one or more persons who are reasonably believed to be qualified institutional buyers or accredited investors.

(h) Any security that was first issued and sold prior to the effective date of this section if that security is either described in subdivision (b), (c), or (f), or was issued and sold in a transaction described in subdivision (d), (e), or (g).

fractional interest securities local agency obligation written consent requirement registered unit investment trust management company Investment Company Act of 1940 Securities Act of 1933 qualified institutional buyers accredited investors financial institutions transactions prior issuance exemption financing transactions local government lease installment sale issuer transaction

(Added by Stats. 1994, Ch. 972, Sec. 3. Effective September 29, 1994.)

Section § 5952

This section explains how a local agency can officially show it agrees to something under Section 5951. This consent must either be in a resolution made by the agency's governing body or in a written document signed by certain authorized officers like the treasurer or chief financial officer.

Any consent granted by a local agency under Section 5951 shall be conclusively evidenced by a resolution of the governing body of the local agency, or by a written instrument executed on behalf of the local agency by its treasurer, chief financial officer, or purchasing agent, or by any other officer of the local agency authorized by resolution of the governing body thereof to grant consents under Section 5951.

local agency consent resolution governing body written instrument treasurer chief financial officer purchasing agent authorized officer granting consent Section 5951 consent official agreement evidence of consent authority to consent

(Added by Stats. 1994, Ch. 972, Sec. 3. Effective September 29, 1994.)

Section § 5953

If a local government in California agrees to allow the sale of a security that involves a fractional interest in things like leases or installment sales, they don't have to check any paperwork or marketing materials related to the security. These documents must clearly state on the front that the local government hasn't reviewed the related documents.

No local agency that consents to an offer or sale of a security that constitutes a fractional interest in a lease, installment sale, or other obligation of the local agency shall be required to review any proceedings relating to the creation of the security or any of the offering or placement memoranda or any other marketing or descriptive materials relating to the security, and all memoranda or materials shall include a prominent statement on the face thereof substantially to the effect that the consenting local agency (specified by name) has not reviewed any of the proceedings relating to the creation of the security or any of the offering or placement memoranda or other marketing materials relating thereto.

local agency consent security sale approval fractional interest lease installment sale obligation security proceedings review exemption offering memoranda placement materials marketing materials prominent statement security creation consenting local agency

(Added by Stats. 1994, Ch. 972, Sec. 3. Effective September 29, 1994.)

Section § 5954

If someone breaks the rules outlined in this chapter, they can be fined up to $10 million or face up to five years in prison, or possibly both.

Any person who violates this chapter shall upon conviction be fined not more than ten million dollars ($10,000,000), or imprisoned pursuant to subdivision (h) of Section 1170 of the Penal Code for five years, or be punished by both that fine and imprisonment.

violation penalty fine up to $10 million imprisonment five-year prison sentence both fine and imprisonment criminal penalty statutory fine legal consequences financial penalty prison term criminal conviction punishment enforcement violation consequences

(Amended by Stats. 2011, Ch. 15, Sec. 128. (AB 109) Effective April 4, 2011. Operative October 1, 2011, by Sec. 636 of Ch. 15, as amended by Stats. 2011, Ch. 39, Sec. 68.)

Section § 5955

If a local agency gives permission to offer or sell a security, it doesn't automatically mean that the security is qualified under a different set of rules that typically apply to securities. There are other laws, starting with Section 25000 of the Corporations Code, that might require the security to meet additional qualifications unless it fits an exemption from that requirement.

The obtaining of local agency consent to an offer or sale of a security under Section 5951 shall not obviate the necessity of qualification of the offer or sale of such security under Division 1 (commencing with Section 25000) of Title 4 of the Corporations Code, unless the security or transaction is exempt from qualification under such law.

local agency consent security offer security sale qualification requirement Corporations Code Section 25000 transaction exemption Division 1 Title 4 securities regulation exempt security offer qualification sale qualification local agency authorization

(Added by Stats. 1994, Ch. 972, Sec. 3. Effective September 29, 1994.)