What Constitutes a Material Misrepresentation in a Securities Offering?
California Corporations Code Section 25401 provides: “It is unlawful for any person to offer or sell a security in this state, or to buy or offer to buy a security in this state, by means of any written or oral communication that includes an untrue statement of a material fact or omits to state a material fact necessary to make the statements made, in the light of the circumstances under which the statements were made, not misleading.” Id.
Instruction No. 18.2 provides: “A factual representation concerning a security is material if there is a substantial likelihood a reasonable investor would consider the fact important in deciding whether to buy or sell that security. ¶ An omission concerning a security is material if a reasonable investor would have regarded what was not disclosed to [him] [her] [it] as having significantly altered the total mix of information [he] [she] [it] took into account in deciding whether to buy or sell the security.” Manual of Model Civil Jury Instructions 18. Securities Exchange Act, Instruction No. 18.2 Securities-Misrepresentations or Omissions-Materiality.
Essentially, a misrepresentation of material fact in the sale of securities may consist of almost any representation, written or oral, which would affect an investor’s decision to make or refrain from making a particular investment. The “material fact” may concern the value of the investment, the qualifications of the management team controlling the investment, the expected return, or the amount the investor is ultimately required invest to receive the expected return.
If you are considering issuing securities to raise capital for your business, or you are considering investing in a particular security, you need to consult a professional with the training and experience to help you make an intelligent decision. Michael Leonard, Esq. of San Diego Corporate Law is the attorney you can trust to assist you understand the complex rules and laws which govern the sale and issuance of securities. To schedule a consultation with Mr. Leonard to discuss your securities needs, or any other business-related matter, you can contact him by visiting San Diego Corporate Law or by telephone at (858) 483-9200.