USA – CALIFORNIA Trends and Developments Contributed by: Bahram Seyedin-Noor, Jared Kopel, Joshua Korr and Monica Eno, Alto Litigation
investor need only establish the misrepresenta- tion or failure to disclose was of a “material fact”. The seller’s intent or lack thereof, is irrelevant (Bowden v Robinson, 67 Cal App 3d 705, 712 (1977)). The two jurisdictions’ secondary liability schemes have differences as well. Section 20(a) of the Securities Exchange Act, for instance, extends liability to “[e]very person who, directly or indirectly, controls any person” who com- mits a primary securities fraud violation. Califor- nia Corporations Code Section 25504 similarly extends liability to “[e]very person who directly or indirectly controls a person” liable for a pri- mary violation, but that is just the beginning of the statute; Section 25504 goes on to hold liable “every partner in a firm so liable, every principal executive officer or director of a corporation so liable” (and more). These distinctions can make a difference as ear- ly as the pleadings stage. Outside (non-employ- ee) directors, for example, sometimes persuade federal courts to dismiss securities fraud claims against them even when claims against one or more primary violators survive dismissal – see In re Gupta Corp Sec Litig, 900 F Supp 1217, 1241 (ND Cal 1994) (“Two courts in this district have held that the mere fact that an outside direc- tor signed a group published document does not make the outside director liable for the con- tents of the document”). This is far more difficult under state law, where – by definition – control person liability extends to “every… director of a corporation so liable”. (There are other differ- ences between federal and state law, even as to control person liability; California law tends to focus more on a defendant’s power to control a primary violator, as opposed to their actual exer- cise of such control.)
Presumably cognisant of these differences, California federal plaintiffs increasingly have been pairing their federal securities claims with California claims. By way of example, a review of 2024 year-to-date PACER (Public Access to Court Electronic Records) filings shows that approximately 20% of new actions filed in the Central District of California that assert federal securities claims also included California state securities claims. Without a change in the law, even more plaintiffs are expected to simultane- ously plead federal and state securities claims in the future. California continues to be a hotbed of litigation concerning cybersecurity breaches On 16 May 2024, the SEC issued a release adopting amendments to Regulation S-P that require broker-dealers, registered investment companies, registered investment advisers, and registered transfer agents to adopt a written incident response programme so as to address unauthorised access to customer information, including procedures for notifying affected per- sons within 30 days (Regulation S-P: Privacy of Consumer Financial Information and Safeguard- ing Customer Information, 89 FR 47688-01). It is likely that, following these new regulations, there will be a new wave of enforcement actions and civil lawsuits. This would be a continuation of the upwards trend in securities actions relating to cybersecurity. As the beating heart of the tech industry, it is not surprising that California continues to be the site of substantial cyber-related litigation. The follow- ing are some examples. • The SEC settled charges against registered transfer agent Equiniti Trust Company LLC, formerly known as American Stock Transfer & Trust Company LLC, for failing to assure that
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