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Lack of Proof of Confidentiality Dooms Class Action Against Blockchain Company | Allen Matkins
The California Securities Act of 1968 generally requires that the offer and sale of a security in an issuer transaction must be qualified unless it is exempt or not subject to qualification (because of preemption). Cal. Corp. Code § 25110. Anyone who violates this requirement may be liable for rescission (if he still owns the security) or damages (if he no longer owns the security). Cal. Corp. Code § 25503.
It is important to note that a defendant may be held liable for violating California’s qualification requirement without any showing of negligence on the defendant’s part. The statute’s severity is somewhat limited by the requirement that the plaintiff be in close contact with the defendant.
The importance of secrecy is illustrated by a US District Court judge by Phyllis J. Hamilton recent decision in In re Ripple Labs, Inc. Litig., No. 18-CV-06753-PJH, 2024 WL 3074379 (N.D. Cal. June 20, 2024). Earlier in the case, Judge Hamilton had held that the plaintiff had adequately asserted secrecy, but noted that it was up to the plaintiff to use discovery to identify “actual evidence” of secrecy. However, in ruling on the defendants’ motion to dismiss, Judge Hamilton found that the plaintiff had failed to present a triable issue of fact regarding secrecy. It appears that the most the plaintiff could prove was that he had purchased from market makers, but the market makers represented multiple sellers and there was no evidence that they represented the defendants.
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