News & Publications

Just last week, the California Taxpayers Association reported: For at least several months, the Franchise Tax Board has been sending filing enforcement notices to nonresidents of California, including many foreign nonregistered limited liability companies (LLCs), who hold an interest in LLCs doing business in California. CalTaxletter, page 9, Vol. XXVI, No. 22 (June 14, 2013) In April, I submitted a petition to [...]

The typical private fund is organized as a limited partnership or limited liability company that is managed by a general partner or manager.  The fund manager is usually compensated in three ways – an annual management fee (often 2%), a carried interest (often 20%), and an investment in the fund (often 1%).  In a recently presented paper, Professors David T. [...]

In 2007, the Department of Corporations issued this Desist & Refrain Order against Mahmoud Karkehabadi and others for violations of the Corporate Securities Law of 1968.  The Department also made a criminal referall to the California Attorney General’s office.  In 2010, the Attorney General filed this felony complaint charging Mr. Karkehabadi with, among other things, the unqualified sale of securities and fraud [...]

Entity conversions are a relatively new phenomena.  The legislature first provided for conversion in 1999 when it enacted AB 197 (Ackerman), which provided for the conversion of partnerships and limited liability companies to other types of business entities.  However, it wasn’t until the new millennium that the legislature permitted corporations to convert to other types of entities by enacting  SB [...]

Much attention is focused on the power of corporations to indemnify corporate officers and other agents.  In California, this is addressed by Corporations Code Section 317, which establishes the power to provide indemnification, and Section 204(a)(11) which allows corporations to include a provision in the articles authorizing indemnification in excess of that expressly permitted by Section 317.  To the extent that [...]

Arthur Andersen was one of the many casualties of the collapse of Enron Corporation.  In 2002, a jury found the once well respected firm guilty of violating 18 U.S.C. §§ 1512(b)(2)(A) and (B).  These sections make it a crime to “knowingly use intimidation or physical force, threaten, or corruptly persuade another person . . . with intent to . . [...]

A decision issued yesterday by the Ninth Circuit Court of Appeals illustrates the peril that can inhere in offering a company stock alternative in a plan governed by the Employee Retirement Income Security Act (ERISA).  Several years ago, Connecticut Retirement Plans and Trust Funds brought a securities fraud action against Amgen Inc. and several of its officers, alleging that, by misstating [...]

California Insurance Code Section 553.5(b) prohibits insurers from providing a defense for certain types of claims, including criminal claims.  Does statute preclude a defense for all criminal claims or just some?  In Mt. Hawley Ins. Co. v. Lopez,  215 Cal. App. 4th 1385 (2013), the Court of Appeal considered the question at some length.  After finding that the statute was [...]

In a 108-page post-trial order issued a few weeks ago, Vice Chancellor Leo E. Strine, Jr. dealt a major blow to the California Public Employees Retirement System (CalPERS), Senior Housing Capital, LLC v. SHP Senior Housing Fund LLC, C.A. No. 4586-CS (Del. Ch. May 13, 2013) Without getting into the specifics, the Vice Chancellor framed the issue as follows: Where, as here, (i) [...]

Once upon a time, an independent accounting firm learned from a law enforcement source that its publicly traded client and two of its directors had committed illegal acts of a serious nature.  The accounting firm contacts the source who advises against further dissemination of the report.  Nonetheless, the accounting firm decides to report the matter to the client’s audit committee [...]

Corporations Code Section 25401 is the general anti-fraud provision of the Corporate Securities Law of 1968.  Section 25504.1 makes a person jointly and severally liable for a violation of Section 25401 if that person “materially assist in [the] violation of Section . . . 25401 . . . with the intent to deceive or defraud”.  Does this mean that a person is liable if [...]

Corporations Code Section 313 generally provides that in the absence of actual knowledge of lack of authority, a contract executed by a corporation is not invalidated by any lack of authority of the signing officers provided the contract has been signed  by the chairman of the board, the president or any vice president and the secretary, any assistant secretary, the chief financial officer or any [...]

The California General Corporation Law has imposes a single qualification to serve as a director – the person must be a “natural person”.  Cal. Corp. Code § 164. Nevada’s for-profit corporation law adds the additional requirement that a director must be at least 18 years of age.  NRS 78.115.  The GCL does permit bylaws to specify the qualifications of directors. [...]

The Financial Industry Regulatory Authority, more commonly known as FINRA, has adopted a Code of Arbitration for Customer Disputes (FINRA has a separate code for industry disputes).  Under FINRA’s Customer Code, a claim by or against an inactive member is ineligible for arbitration unless, after the claim arises, the customer agrees in writing to arbitrate.  Rule 12202.   In other words, a pre-claim [...]

When I joined the Department of Corporations, it had no website.  I remember reviewing possible designs for a site.  Now, it seems hard to imagine that there was a time when state agencies didn’t have websites.  Today, the Department’s website is a good source of information about enforcement actions, licensing requirements and procedures, as well as the laws and regulations [...]

The California Corporations Code endows corporations with certain rights, including the right to “adopt, use and alter” a seal.  Cal. Corp. Code § 207(a).  The Corporations Code does not define a “seal” but the Code of Civil Procedure does.  Under Section 1930,  a seal “is a particular sign, made to attest, in the most formal manner, the execution of an instrument.”  [...]

Yesterday’s post discussed virtual currencies (e.g., Bitcoin) and the General Corporation’s law prohibition on issuing or putting into circulation money.  But what exactly is money?  The General Corporation Law has no answer.  I’m aware of at least three different California statutes that define “money”. Government Sanction Seems To Be The Sine Qua Non Of Money First, we have the California Uniform Commercial Code which defines “money” in [...]

I’ve been seeing an increasing number of references to Bitcoin and other forms of virtual or crypto currencies in the news.  For example, Jeffrey Sparshott and Robin Sidel of the Wall Street Journal reported last week that the Department of Homeland Security had frozen the account “tied to the largest Bitcoin exchange”.  In March, the Financial Crimes Enforcement Network (“FinCEN”) issued this guidance [...]

It is widely assumed that if a contract, note or other instrument is signed by a corporation’s president and its secretary, it will not be invalidated as to the corporation by any lack of authority of the signing officers.  After all, Section 313 of the California Corporations Code provides: Subject to the provisions of subdivision (a) of Section 208, any note, [...]

Artistotle didn’t think much of the idea of paying interest:  (“As this is so, usury is most reasonably hated, because its gain comes from money itself and not from that for the sake of which money was invented. For money was brought into existence for the purpose of exchange, but interest increases [...]

No Harm, No Foul The late Lakers broadcaster Chick Hearn was known for coining or popularizing numerous basketball expressions, including “air ball” and  ”no harm, no foul”.   Now, the U.S. Supreme Court may soon decide whether the principle of “no harm, no foul” applies to Section 16, the other insider trading statute. Do Section 16 Plaintiffs Suffer Injury In Fact? In 2009/2010, [...]

Yesterday’s blog discussed California’s requirement that many domestic and foreign corporations send financial statements to their shareholders.  If a corporation has 100 or more holders of record (determined in accordance with Section 605), then the annual report must also provide a brief description of the following: Any transaction during the previous fiscal year involving an amount in excess of $40,000 to which the [...]

Rachel Anderson is a law professor at the University of Nevada, Las Vegas Boyd School of Law.  She has a website, Salon Sub Rosa, which carries the subtitle of “Musings in the Harlem Renaissance”.  Her site provides a wealth of information on Business Law & Policy, Education Law & Policy, and Nevada Law & Policy.  Recently, she was kind enough to include this [...]

Anyone who has submitted a business filing to the California Secretary of State’s office know that a serious problem exists.  At present, the Secretary of State has 122,000 documents waiting to be filed.  The delays are simply intolerable for the conduct of business in a modern commercial state.  For example, the Secretary of State is processing today merger documents that were filed [...]

The formation of a subsidiary under the laws of a foreign country may not seem to implicate the California Corporate Securities Law.  Yet, an offer and sale may occur “in this state” within the meaning of Corporations Code Section 25008. See California’s Blue Sky Law Problems for Foreign Issues and Foreign Issuers, 23 Insights 28 (July 2009) and Yes, There Is [...]