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California Securities Fraud Laws

Overview of California Securities Fraud Laws

"Securities" describe financial investments such as stocks and bonds. With securities fraud, an individual or a corporation manipulates the securities markets through misleading or false information. The fraud might affect the values of securities or result in financial losses to consumers, investors, financial institutions, and private companies. For example, misleading information might result in an inflated stock price if buyers inaccurately evaluate the issuing company's financial health.

Prosecutions for securities fraud happen in both federal court and state court. Under California securities fraud laws, the prosecutor must show that the defendant willfully violated the state's securities laws. The defendant may have acted intentionally, deliberately, or recklessly. To show the defendant's willful conduct, the prosecutor will likely need to present information regarding the defendant's knowledge of securities laws and regulations.

The prosecutor must also prove that the defendant participated in a plan or scheme to fraudulently affect offers, sales, or purchases of securities. Alternatively, the prosecutor can establish securities fraud by showing that the defendant directly or indirectly permitted the release of a misleading or false statement. Securities fraud might also take place if the defendant deliberately withheld information that would affect offers, sales, or purchases related to securities.

If securities fraud occurred due to a false statement, a misleading statement, or an omitted fact, a prosecutor must establish the materiality of the statement or fact. A material statement or fact is substantially likely to affect investment decisions made by the consumer, investor, or entity.

Defenses to Securities Fraud Charges

  • Lack of knowledge regarding the relevant securities laws
  • Truth of the statement

Penalties and Sentences

Securities fraud prosecuted in California state court may result in a fine, imprisonment, or both. The state may penalize a convicted defendant with a fine in an amount up to $10,000,000. A sentence of imprisonment might require two, three, or five years served in state prison.

If the state convicts an issuer of securities on charges of securities fraud, the potential punishment may increase to a fine in an amount up to $25,000,000, or result in imprisonment for a term of two, three, or five years in state prison.

California Securities Fraud Laws: Statute

California Corporations Code Section 25401 (scroll down for section)
California Corporations Code Sections 25540-25542

Note: State laws are constantly changing -- please contact a California criminal attorney or conduct your own legal research to verify the state law(s) you are researching.

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