Monday, August 24, 2015

California Legislature Amends Fraud Provision, Public Utility and Share/Membership Exemptions

By Jay Fishman, J. D.

The California Legislature amended one of its fraud provisions, as well as the public utility and corporation share/membership exemptions within the Corporation Securities Law of 1968. The amendments take effect January 1, 2016.

Fraud. The fraud provision, as amended by AB-1517, makes it unlawful for any person to offer or sell a security in California, or to buy or offer to buy a security in the state, by using any written or oral communication that includes an untrue statement of a material fact or an omission of a material fact to make the statement appear not misleading under the circumstances.

Eliminated from the fraud provision were the following subsections: (1) “employ a device, scheme, or artifice to defraud”; and (2) “engage in an act, practice or course of business that operates or would operate as a fraud or deceit upon another person.”

Public utility exemption. This exemption, also amended by AB 1517, is available for any security issued or guaranteed by any railroad, other common carrier, public utility, or public utility holding company: (1) that is subject to jurisdiction of the Federal Energy Regulatory Commission under the Public Utility Holding Company act of 2005 and whose rates and charges are regulated by the United States or a state; or (2) whose issuance or guarantee of a security is regulated by a governmental authority of either the United States (or any state) or Canada (or any Canadian province), and the security is registered with, or authorized for issuance by, that authority.

Share/membership exemption. This exemption, as amended by AB-816, is available for any shares or memberships issued by a corporation organized and existing under the California Consumer Cooperative Corporation Law, provided the aggregate investment of any shareholder or member does not exceed $1,000 (previously $300).