Investment Fraud Lawyers in the San Francisco Bay Area

Investors who were misled into buying a security, whether stock in a private company, an interest in a fund, a promissory note or a real estate syndication, can often recover under California's Corporate Securities Law, the state's deceit statutes, and, for older investors, the Elder Abuse and Dependent Adult Civil Protection Act. Reiser Law, P.C. represents investors in these claims from our Walnut Creek office, and we represent companies, founders and individuals accused of investment fraud. We litigate in California superior courts, the federal district courts in California, and arbitration.

What investment fraud looks like

A startup's founder tells early investors the company has signed contracts it has not signed. A real estate sponsor projects returns from rents the property never collected. A fund manager reports net asset values its holdings cannot support. A friend who sold the investment does not mention the commission he received. Shares are sold without the qualification California requires, or by someone not licensed to sell them. The right claim depends on what was said, who said it, who sold the investment, and whether the paperwork complied with the qualification rules.

California's securities fraud statute

It is unlawful to offer or sell a security in California, or to buy or offer to buy one, by means of any written or oral communication that includes an untrue statement of a material fact or omits a material fact necessary to make the statements made not misleading. Cal. Corp. Code § 25401.

A person who violates section 25401 is liable to the person who bought the security from, or sold it to, that person. Cal. Corp. Code § 25501. The investor may sue for rescission or, if the investor or defendant no longer owns the security, for damages. Id. The defendant avoids liability only by proving that the plaintiff knew the facts concerning the untruth or omission, or that the defendant exercised reasonable care and did not know, and could not have known with reasonable care, of the untruth or omission. Id. The burden on that defense is on the defendant. For claims governed by the current version of the statute, effective January 1, 2022, the court must award reasonable attorney's fees and costs to a prevailing purchaser or seller. Id.

Selling unqualified securities

Unless a security or transaction is exempt, an issuer may not offer or sell it in California unless the sale has been qualified. Cal. Corp. Code § 25110. A person who sells in violation of the qualification requirement is liable to the buyer for the consideration paid, with interest and reasonable attorney's fees, less any income received, upon tender of the security, or for damages if the buyer no longer owns it. Cal. Corp. Code § 25503. Qualification claims can succeed without proof of any misstatement, which makes them worth checking in every private placement.

Who else is liable

California's securities law reaches beyond the seller:

  • Control persons and insiders. Every person who directly or indirectly controls a person liable under section 25501 or 25503, every partner in a firm so liable, every principal executive officer or director of a corporation so liable, every employee who materially aids in the violation, and every broker-dealer or agent who materially aids in it, is jointly and severally liable with and to the same extent as the seller, unless that person had no knowledge of or reasonable grounds to believe in the facts that create the liability. Cal. Corp. Code § 25504.
  • Those who materially assist with intent to defraud. Any person who materially assists in a violation of section 25401, or of the qualification requirements, with intent to deceive or defraud, is jointly and severally liable with any other person liable for the violation. Cal. Corp. Code § 25504.1.

When the issuer is insolvent, the officers, directors, promoters and agents who made the sale may be the realistic source of recovery.

Common-law fraud and older investors

The securities statutes do not displace common-law claims. A person who willfully deceives another with intent to induce him to alter his position to his injury or risk is liable for the resulting damage. Cal. Civ. Code § 1709. Deceit includes a false statement of fact by one who does not believe it, a false statement of fact by one without reasonable ground to believe it, the suppression of a fact by one bound to disclose it, and a promise made without any intention of performing it. Cal. Civ. Code § 1710.

Investors who are 65 or older have additional protection. Cal. Welf. & Inst. Code § 15610.27. Financial abuse of an elder includes taking, appropriating, obtaining or retaining an elder's property for a wrongful use or with intent to defraud, or assisting in doing so. Cal. Welf. & Inst. Code § 15610.30(a). When financial abuse is proven by a preponderance of the evidence, the court must award the plaintiff reasonable attorney's fees and costs in addition to compensatory damages and other remedies. Cal. Welf. & Inst. Code § 15657.5(a). See our article on elder financial abuse and FINRA arbitration.

Deadlines

  • Securities fraud claims under section 25501. The action must be brought before the earlier of five years after the transaction or two years after the plaintiff discovers the facts constituting the violation. Cal. Corp. Code § 25506(b).
  • Qualification claims under section 25503. The period is shorter: the earlier of two years after the violation or one year after discovery. Cal. Corp. Code § 25507(a).
  • Common-law fraud. Three years, with the claim accruing on discovery of the facts constituting the fraud. Cal. Civ. Proc. Code § 338(d).
  • Federal securities fraud. The earlier of two years after discovery or five years after the violation. 28 U.S.C. § 1658(b).

These periods run even while an investor is waiting for the company or sponsor to make good, so delay can cost an otherwise strong claim.

When a broker sold the investment

If a brokerage firm or registered representative recommended or sold the investment, the claim usually belongs in FINRA arbitration. Our page on FINRA arbitration explains those claims; FINRA arbitration is available to investors nationwide, and we handle claims for California investors as well as Florida investors.

When the investment was a Ponzi scheme

If the investment collapsed because it was a Ponzi scheme, see our page on investor fraud and Ponzi scheme recovery. If a receiver has sued you to recover payments you received, see Ponzi scheme clawback defense.

How we build an investment fraud case

  1. Reconstruct the sale. We gather the offering documents, subscription agreement, pitch decks, financial projections and the communications that led to the investment.
  2. Check qualification and exemptions. Many private offerings rely on an exemption. If the exemption was not available, a qualification claim may be the simplest path.
  3. Identify every liable person. Officers, directors, control persons, agents and those who materially assisted may be liable alongside the issuer.
  4. Trace the money. Bank records show where the investment went and who benefited.
  5. Pick the forum. Arbitration clauses, federal jurisdiction and the defendants' locations determine where the case is filed.

What to gather before you call

  • Offering memorandum, subscription agreement, side letters and any pitch deck
  • Account statements, K-1s and tax forms
  • Wire confirmations and cancelled checks
  • E-mails, texts and messaging-app conversations with the sponsor, founder or salesperson
  • Any updates the company sent investors, including financial statements
  • Notes of what you were told, by whom and when

Questions clients ask

Do I have to prove the seller knew the statement was false?

Not under section 25501. Once the investor shows a material misstatement or omission in the sale, the defendant must prove that the investor knew the truth or that the defendant exercised reasonable care and did not know of the problem.

The company is out of money. Who can I recover from?

California law can make control persons, principal executive officers, directors, and agents or employees who materially aided the sale jointly and severally liable with the seller.

I am over 65. Does that change anything?

It can. California's elder financial abuse statute adds remedies, including a mandatory award of attorney's fees when financial abuse is proven.

How long do I have?

For securities fraud claims, the earlier of two years after discovery or five years after the sale. Qualification claims have shorter periods. Get advice early.

Talk to us

Michael J. Reiser, the firm's founder, has been a member of the State Bar of California since 1988. Sean Svendsen, also a member of the State Bar of California, handles California litigation with the firm from the Bay Area. Matthew W. Reiser and Isabella Martinez are members of the State Bar of California and The Florida Bar. To discuss an investment loss, call (925) 256-0400, email michael@reiserlaw.com or sean@reiserlaw.com, or use our contact page. Our office is at 1990 North California Blvd, 8th Floor, Walnut Creek, CA 94596. For investments sold in Florida, see Miami investment fraud.

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