In May 2011, I wrote about U.S. District Court Judge Susan Illston's decision allowing a purchaser of auction rate securities to pursue claims under the California Corporations Code against Deutsche Bank Securities Inc.  Anschutz Corp. v. Merrill Lynch & Co., 785 F. Supp. 2d 799 (N.D. Cal. 2011).  Judge Illston distinguished her ruling from a seemingly contrary decision by Judge Loretta A. Preska in In re Merrill Lynch Auction Rate Secs. Litig., 2011 U.S. Dist. LEXIS 14053 (S.D. N.Y. Feb. 9, 2011), dismissing the same plaintiffs' California Corporations Code claims against different defendants:

Here, unlike the cases relied on by the Court in the Merrill Lynch opinion, there is conduct in California that resulted in the alleged harm to plaintiff.  The ARS at issue were purchased in California by plaintiff's agent.  That conduct is sufficient to allow plaintiff to bring claims under California's Corporation Code.

Anschutz Corp., 785 F. Supp. 2d at 818 n. 18.  See "NY District Court Finds That Same Plaintiff In ARS Case Has No California Securities Law Claims".

The plaintiff appealed Judge Preska's decision and the Second Circuit Court of Appeals has now sided with Judge Preska.  Anschutz Corp. v. Merrill Lynch & Co., 2012 U.S. App. LEXIS 17006 (2d Cir. Aug. 14, 2012).  The Second Circuit's opinion confusingly states that the plaintiff alleged violations of Corporations Code Sections  25500, 25501, and 25504.  It really isn't possible, however, to violate those sections because those sections (located in Chapter 1, Part 6, Division 1, Title 4 of the Corporations Code) merely define remedies for violations of specific statutes located elsewhere in the Corporations Code (e.g., Chapter 1, Part 5 (Corporations Code Sections 25400-25404)).  For example, Section 25400 prohibits market manipulation and Section 25500 prescribes the remedy for market manipulation.  Thus, a it can only be properly said that a defendant violated Section 25400, not Section 25500.

When it comes to the jurisdictional reach of Sections 25400, courts should look at what the statute proscribes.  Section 25400 proscribes specific activity "in this state", a term defined in painstaking detail in Section 25008.  The Second Circuit seemed a bit confused on this point because it seemed to recognize a distinction between "in this state" and "unlawful conduct".   Under these provisions of the Corporate Securities Law, however, conduct can only be unlawful if done "in this state" as defined by statute.  Therefore, I believe the proper approach is to observe the structure and wording of the statutes involved and examine whether the plaintiff has properly alleged a violation "in this state".