“Security” Definitions In CSL And ’33 Act – Similar But Not The Same

Both the California legislature and the U.S. Congress have enacted extensional definitions of “security” – that is Section 25019 of the Corporate Securities Law of 1968 and Section 2(a)(1) of the Securities Act each provides a list of what constitutes a security. These lists, however, are not the same.

Here’s what’s on the California list that isn’t on the federal list:

  • Membership in an incorporated or unincorporated association;
  • viatical settlement contract (see Section 25023) or a fractionalized or pooled interest therein;
  • life settlement contract (see Section 25023) or a fractionalized or pooled interest therein;
  • interest in a limited liability company and any class or series of those interests, including any fractional or other interest in that interest (note exception); and
  • any beneficial interest or other security issued in connection with a funded employees’ pension, profit sharing, stock bonus, or similar benefit plan.

Here’s what’s on the federal list that isn’t on the California list:

  • Security future;
  • Security based swap (added by Section 768(a) of the Dodd-Frank Act).

In addition, the California statute, but not the federal statute, expressly excludes the following:

  • any beneficial interest in any voluntary inter vivos trust which is not created for the purpose of carrying on any business or solely for the purpose of voting;
  • any beneficial interest in any testamentary trust;
  • any insurance or endowment policy or annuity contract under which an insurance company admitted in this state promises to pay a sum of money (whether or not based upon the investment performance of a segregated fund) either in a lump sum or periodically for life or some other specified period;
  • any franchise subject to registration under the California Franchise Investment Law.

Notwithstanding the length and apparent specificity of these lists, the courts have had a lot to say about what is and isn’t a “security”.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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