The Securities Fraud Device That The Legislature Devised To Omit

Explore:  Fraud Securities Fraud

Last year, Senator Jerry Hill authored a bill, SB 538, which rewrote Corporations Code Section 25401.  As I posted, the underlying premise was fanciful at best – that California’s statute “has failed to keep up with similar language in federal anti-fraud statutes”.   By metamorphosing Section 25401 from a statute based on Section 12(a)(2) of the Securities Act into a statutory mimic of Rule 10b-5 under the Securities Exchange Act, the legislature has introduced the argument that plaintiffs must now allege scienter and causation just as they do in federal Rule 10b-5 suits.

The legislature copied Rule 10b-5 but not exactly word-for-word.  Perhaps unwittingly, it substituted the word “devise” for “device”.  Thus, it is now unlawful to employ “a devise, scheme or artifice to defraud”.  In fact, the words are very closely related and entered the English language from Old French in the 14th century.  ”Devise” is derived from “deviser” which meant to dispose of or plan.  ”Device” comes from “devis” which meant to intend or wish. Geoffrey Chaucer used the word “devise,” which he spelt “devys”, in this sense in the General Prologue to The Canterbury Tales: “And we wol reuled been at his devys” (And we will be ruled at his wish).  Both words can be traced back to the Latin word “divisus” which is the singular perfect participle of “divido” meaning to divide.  Anyone who has ever taken second year Latin will recognize the word from the famous opening to Julius Caesar’s De Bello Gallico (About The Gallic War):

Gallia est omnis divisa in partes tres . . . (All Gaul is divided into three parts . . .)

The legislature now has a bill, SB 146 which would, among other things, change “devise” to “device”.

Written by:

Published In:

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.

© Allen Matkins Leck Gamble Mallory & Natsis LLP | Attorney Advertising

Don't miss a thing! Build a custom news brief:

Read fresh new writing on compliance, cybersecurity, Dodd-Frank, whistleblowers, social media, hiring & firing, patent reform, the NLRB, Obamacare, the SEC…

…or whatever matters the most to you. Follow authors, firms, and topics on JD Supra.

Create your news brief now - it's free and easy »

All the intelligence you need, in one easy email:

Great! Your first step to building an email digest of JD Supra authors and topics. Log in with LinkedIn so we can start sending your digest...

Sign up for your custom alerts now, using LinkedIn ›

* With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name.