Opinion ID: 1444385
Heading Depth: 2
Heading Rank: 2

Heading: The section 25400 cause of action.

Text: The complaint purports to state a cause of action under subdivision (d) of section 25400 which provides: It is unlawful for any person, directly or indirectly, in this state: [¶]... [¶] (d) If such person is a broker-dealer or other person selling or offering for sale or purchasing or offering to purchase the security, to make, for the purpose of inducing the purchase or sale of such security by others, any statement which was, at the time and in the light of the circumstances under which it was made, false or misleading with respect to any material fact, or which omitted to state any material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, and which he knew or had reasonable ground to believe was so false or misleading. In support of the section 25400 cause of action, the complaint alleges that defendants individually and pursuant to a conspiracy, or as aiders and abetters of one another, made untrue statements of material facts, omitted to state material facts necessary to make the statements not misleading, and engaged in acts, practices, and a course of conduct which operated as a fraud and deceit upon class members in order to sell their own Diamond Multimedia shares or induce the purchase of Diamond Multimedia stock by plaintiff and members of the class. Defendants sold or offered for sale Diamond Multimedia shares during the class period or willfully participated in such sales or offerings for sale. Defendants offered to sell or sold Diamond Multimedia shares by means of written or oral communications which included untrue statements of a material fact or omitted to state material facts necessary to make the statements not misleading. Members of the plaintiff class suffered damages because they relied on the integrity of the market when they purchased Diamond Multimedia shares at artificially inflated prices. Plaintiffs would not have purchased the shares at the price paid or at all had they been aware that the market price had been artificially and falsely inflated by defendants' misleading statements and concealments. At the time of their purchases the fair market value of the shares was substantially less than the price paid by class members. Compensatory and punitive damages, preand postjudgment interest, attorneys and experts fees, and equitable or injunctive relief were sought. Diamond Multimedia and all of the individual defendants except Lee (collectively Diamond Multimedia or defendants) demurred generally (Code Civ. Proc, § 430.10, subd. (e)) on the ground that the complaint did not state facts sufficient to constitute a cause of action as to either cause of action. [7] The first of several bases for relief offered by Diamond Multimedia in support of its demurrer to the Corporate Securities Law cause of action was an argument that the complaint failed to plead the jurisdictional prerequisite for actions under sections 25400 and 25500 because there was no allegation that any stock purchases were made in this state. [8] Legislative history materials accompanied the memorandum of points and authorities. At the hearing on the demurrer, Diamond Multimedia argued that the legislative history of sections 25400 and 25500 reflected an intent to protect California investors, i.e., California residents or persons who purchase stock in California. The trial court overruled the Diamond Multimedia demurrer to the Corporate Securities Law cause of action. [9] It ruled that plaintiffs had adequately alleged that the defendants made misstatements for the purpose of inducing purchase of Diamond Multimedia stock, but the individual defendants were not liable for aiding and abetting under section 25400, and Diamond Multimedia could not be held liable for statements that were not made in connection with the November 1995 stock offering. This petition followed.