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Face It, Court Rules Plaintiff Must Be An Actual Seller To Maintain Securities Fraud Action

A recent ruling by U.S. District Court Judge Cynthia Bashant reminds us that when it comes to securities fraud claims, a plaintiff is generally required to have either bought or sold a security.  Melcher v. Fried, 2018 U.S. Dist. LEXIS 89353. 

The would-be plaintiff in that case was a limited partner in a partnership that had sold securities back to the issuer immediately before the issuer signed a term sheet that ultimately led to its sale.  Needless to say, the negotiations about the term sheet were not disclosed to the plaintiff.  

Judge Bashant found that the plaintiff could not bring suit because the sale was between the issuer and the partnership, not the plaintiff.  Judge Bashant dismissed the plaintiff's claims under both federal and California securities laws (Corporations Code Sections 25401 and 25402).  Citing the California Uniform Partnership Act of 1994, she found that the claims belonged to the partnership.  Although I agree with Judge Bashant, I question the reference to the UPA because she describes the partnership as a limited, not general, partnership.

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