California Corporations Code Section 25400 lists a variety of acts that are considered to manipulate the price of securities. Section 25400 was modeled on Section 9(a) – (e) of the Securities Exchange Act of 1934. Although Section 25400 declares these acts to be “unlawful”, the statute does not technically impose liability. The legislature left that duty to Corporations Code Section 25500 which imposes liability on any person who willfully participates in any act or transaction in violation of Section 25400. Under Section 25500, liability extends to “any other person who purchases or sells any security at a price which was affected by such act or transaction”.
In this January post, I discussed the Court of Appeal’s decision in Viterbi v. Wasserman, 191 Cal. App. 4th 927 (2011) holding that privity is required to maintain an action for rescission under Sections 25504 and 25504.1. Neither of those statutes, however, imposes liability for violations of Section 25400. Thus, the decisions leaves unanswered the question of whether privity is required under Corporations Code Section 25500.
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