No Rescission Without Privity

California Corporations Code Section 25401 declares unlawful the sale or purchase of a security by means of a written or oral communication that includes an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading. Section 25401, however, does not prescribe any particular remedies.

Corporations Code Section 25501 provides that a person who violates Section 25401 is liable either for rescission or for damages (if the plaintiff or the defendant, as the case may be, no longer owns the security). Section 25504 provides for secondary liability against persons in addition to a “seller” of securities if they “control” the seller. Similarly, Section 25504.1 provides for secondary liability against persons who “assist” sellers in violations of the securities laws (commonly referred to as “aiders and abettors”).

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