CA Law Increases Risks for Private Placements

"On September 18, 2004, California Governor Arnold Schwarzenegger signed into law Assembly Bill 2167, a new law implementing changes to various California statutes and aimed at deterring individuals and entities from operating as unlicensed broker-dealers. The new law, effective January 1, 2005, does the following:

Provides an express right of rescission to any investor who purchases a security from a person or entity that is required to be licensed in California as a registered broker-dealer that is not so registered against the unregistered seller.

Provides that the purchaser can also sue the unregistered seller for monetary damages, and may recover treble damages (limited to $10,000 above the purchase price), and may also be awarded attorneys� fees and costs.

Extends the statute of limitation for a purchaser to bring an action to five years after the transaction is completed, or two years from the purchaser�s discovery of the facts, whichever occurs first. "

Read more in Morrison & Foerster article.