In this blog posting from last June, I mentioned briefly the phenomenom of secondary trading in the shares of companies not subject to the periodic reporting requirements of the Securities and Exchange Commission. In this article for the Daily Journal, I mentioned some legal issues and risks associated with the practice. California, for example, requires qualification of nonissuer transactions unless the security or transaction is exempt or not subject to qualification by reason of federal preemption. Cal. Corp. Code § 25130.

To the extent that sellers are relying on the exemption in Corporations Code § 25104(a) for offers and sales of a security by the bona fide owner for the owner’s own account, two conditions must be met. First, the sale must not be accompanied by the publication of any advertisement. Second, the sale must not be effected by or through a broker-dealer in a public offering.