I often hear lawyers say something along the lines of "We need to find an exemption from the California Corporate Securities Law because one of the investors is a citizen of California". The citizenship or residency of a purchaser, however, doesn't necessarily determine whether the CSL will apply to an offer or sale. Qualification of an offer or sale is required when made "in this state". Cal. Corp. Code §§ 25110, 25120 & 25130. When an offer and sale is made "in this state" is determined under by the labyrinthine provisions of Corporations Code Section 25008.
Under Section 25008, an offer or sale is made "in this state" if any one or more of the following events occurs in California:
- An offer to sell is made in California,
- An offer to buy is accepted in this state, or
- If both the seller and the purchaser are domiciled in this state, the security is delivered to the purchaser in this state.
The statute goes on to detail when an offer sell is made in California and when an offer to buy is accepted here. None of these provisions refers to the residency or citizenship of the seller or purchaser.
Thus, I was pleased to read the following statement in a recent ruling by U.S. District Court Judge Richard Seeborg:
The only information that could possibly establish that a sale took place in California is the fact that Sarafaraz [one of the defendants] is a citizen of California. Groblebe [one of the plaintiffs] and Lopez [another defendant] are not. That a person is a citizen of a state is insufficient to leap to the conclusion that the sale of a security took place in that state.
Siegal v. Gamble, 2016 U.S. Dist. LEXIS 36346 (N.D. Cal., March 21, 2016).