The California Corporate Securities Law requires that offers and sales of securities in any “nonissuer transaction” be qualified unless exempt or not subject to qualification.  Cal. Corp. Code § 25130.  This is an important first principle to keep in mind when taking a pledge of securities as collateral for a loan.  The day may come when it may be necessary to foreclose on the pledge and conduct sale of the securities.  Whether the sale is public or private, it is a nonissuer transaction (see the definition in Section 25011) and will be unlawful in this state unless qualified, exempt or not subject to qualification.

In many cases, this won’t be a problem because Section 25104(e) exempts any offer or sale by, or for the account of, a bona fide secured party selling the security in the ordinary course of business to liquidate a debt.  Some might see in this exemption an backdoor opportunity to conduct an unqualified offering by entering into a sham loan with the intent of foreclosing.  This isn’t a very good dog and it certainly won’t hunt in California.  Under Rule 260.104.2, the phrase bona fide secured party does not include a secured party who takes securities in pledge without any intention or expectation that they will be redeemed but merely as a step in the distribution of those securities.

Note that Section 25104(e) is an exemption from the nonissuer qualification requirement only.  A pledgee should not foreclose on pledged securities before working through the application of the Securities Act of 1933 and Articles 8 and 9 of the Uniform Commercial Code.

CalPERS and Social Media

The California Public Employees Retirement System is an active user of the internet and social media to spread its message.  Below are some statistics that will be presented to the CalPERS Board of Administration at its meeting on Wednesday:

Twitter followers: 4,774

Facebook “likes”: 3,824

YouTube: 96,800 Video Views  593,732 Page Views