SB766:v97#DOCUMENTBill Start
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Amended
IN
Senate
May 13, 2003
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Amended
IN
Senate
January 26, 2004
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CALIFORNIA LEGISLATURE—
2003–2004 REGULAR SESSION
Senate Bill
No. 766
Introduced by
Senator
Florez
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February 21, 2003 |
An act to amend Section 25500 of the Corporations Code, relating to corporations.
LEGISLATIVE COUNSEL'S DIGEST
SB 766, as amended, Florez.
Securities violations: remedies.
Existing law, the Corporate Securities Law of 1968, makes unlawful specified acts that create a false or misleading appearance in connection with securities transactions. This law also provides a civil remedy for the willful participation in any of these acts.
This bill would make various findings by the Legislature concerning a recent court decisions decision relating to these provisions and would declare the Legislature’s intent to abrogate the decisions decision. The bill would specify that in cases filed on or after January 1, 2004, or in which a judgment has not been entered before that date, a person is not required to be a market participant for purposes of the civil remedy provided under these provisions.
Digest Key
Vote:
MAJORITY
Appropriation:
NO
Fiscal Committee:
NO
Local Program:
NO
Bill Text
The people of the State of California do enact as follows:
SECTION 1.
(a) The Legislature finds and declares the following:(1) Sections 25400 and 25500 of the Corporations Code are intended to protect California residents and investors from fraudulent manipulation of the financial markets, and California pension funds are the primary beneficiaries of the protections provided by these statutes.
(2) Section 25400 of the Corporations Code makes various acts unlawful that create a false or misleading impression concerning securities transactions, and Section 25500 of the Corporations Code provides a civil remedy for the willful participation in an act or transaction in violation of Section 25400 of the Corporations Code.
(3) The Court of Appeals for the Sixth Appellate District of California, in Kamen v. Lindly (2001) 94 Cal.App.4th 197, recently held that the phrase “willfully participates” in Section 25500 of the Corporations Code does not apply to participants who are not engaged in “market activity.” This holding incorrectly and unfairly prevents California investors from seeking redress from perpetrators of corporate and securities fraud.
(4)The Court of Appeals for the Second Appellate District of California, in California Amplifier, Inc. v. RLI Insurance Co. (2001) 94 Cal.App.4th 102, recently held that the phrase “willfully participates” in Section 25500 of the Corporations Code requires that a participant in a violation of subdivision (d) of Section 25400 of the Corporations Code, relating to intentionally or recklessly making a false or misleading statement, must knowingly and intentionally make a false statement. This holding incorrectly and unfairly increases the standard required in cases in which a Californian is the victim of securities fraud.
(b)It is the intent of the Legislature to abrogate the holding in California Amplifier, Inc. v. RLI Insurance Co. (2001) 94 Cal.App.4th 102, to the extent that it holds that willful participation in a violation of subdivision (d) of Section 25400 of the Corporations Code requires that the participant knowingly and intentionally make a false or misleading statement.
(c)
(b) It is the further intent of the Legislature to abrogate the holding in Kamen v. Lindly (2001) 94 Cal.App.4th 197, as indicated in Section 2 of this act.
SEC. 2.
Section 25500 of the Corporations Code is amended to read:25500.
(a) Any person who willfully participates in any act or transaction in violation of Section 25400 shall be liable to any other person who purchases or sells any security at a price that was affected by that act or transaction for the damages sustained by the latter as a result of that act or transaction. The damages shall be the difference between the price at which the other person purchased or sold securities and the market value that the securities would have had at the time of his or her purchase or sale in the absence of the act or transaction, plus interest at the legal rate.(b) For the purpose of this section, the term “participates” does not require that the person be a market participant to be found liable under this section.
(c)For the purpose of this section, a person may be found liable for participating in a violation of subdivision (d) of Section 25400 if he or she meets the mental state requirement set forth in that subdivision.
(d)The amendments made to this section by Senate Bill 766 of the 2003–04 Regular Session shall apply only to a case meeting either of the following criteria:
(1)The case was filed on or after January 1, 2004.
(2)A judgment in the case has not been entered by a trial court, or if on appeal by the reviewing court, before January 1, 2004.7