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What Is the Difference Between Federal Securities Laws and California Securities Laws, and How Do They Apply to Me?

Both the state of California and the federal government have laws about securities on the books, but the two sets of laws differ significantly. Federal and California securities laws cover many of the same broad topics, but the federal laws are geared toward nationwide regulation of securities, while California and other states’ laws focus more on corporate governance and the activities of businesses and people operating in the state. Often, the federal and state laws overlap somewhat, and in some instances they appear to conflict.

The California “blue sky” laws are purely a state creation. Before federal securities regulations such as the Securities Act of 1933 existed, states regulated securities themselves without federal intervention. These blue sky state laws and regulations still exist today, for the most part. See Cal. Corp. Code Section 25000 et seq. The laws cover such topics as consumer protection and fraud, and they work by penalizing sellers of securities who mislead investors or fail to disclose information. However, some federal laws preempt, meaning overrule, state blue sky laws.

In contrast, similar insider trading laws appear in both the federal and California canons. However, California insider trading laws are tailored to apply only to securities offered in the state or to people trading there, such as brokerages. Federal insider trading laws apply nationwide to interstate transactions, such as sales of stock by a corporation in one state to buyers in many states.

Why should investors and businesses care about the different federal and California laws? If you are selling or shopping for securities in California, in all likelihood you need to obey both sets of laws, and it is not always clear which laws apply when, or to whom. Interpretation of the various securities laws continues to be a contentious and complicated legal issue, and liability for violations can be severe without competent legal advice.

If you would rather spend time developing your business instead of interpreting byzantine securities laws, you need an attorney. Protect yourself and your business by seeking out the best. To schedule a consultation, e-mail San Diego Corporate Law or call Mr. Leonard at (858) 483-9200.

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