SECURITIES COMPLIANCE | 2026-09-30

California’s Blue Sky Law: Qualification and Liability Under the Corporate Securities Law of 1968

Federal registration is only half the picture. California has its own securities law requiring offers and sales to be qualified — or exempt — with its own antifraud rules and rescission remedies.

Companies raising capital often focus on the federal securities laws — but they operate alongside a second, equally important layer: state securities regulation, known as “blue sky” law. In California, that layer is the Corporate Securities Law of 1968</stro

California’s blue sky law is a distinct regime that every issuer selling securities in the state must address.

The Qualification Requirement — § 25110

The centerpiece of the Corporate Securities Law is Corporations Code § 25110, which generally makes it unlawful to offer or sell a security in California in an issuer transaction unless the sale has been qualified with the California Department of Financial Protection and Innovation (DFPI), or the security or transaction is exempt, or the security is a “covered security” under federal law (for which state qualification is preempted). In other words, absent an exemption or federal preemption, an issuer must obtain qualification from the state before selling its securities to California investors.

Exemptions and Coordination With Federal Law

As with the federal system, California provides numerous exemptions from qualification — for certain limited offerings, transactions with sophisticated or institutional investors, and other defined situations. Additionally, the National Securities Markets Improvement Act (NSMIA) preempted state qualification for certain “covered securities,” such as securities sold under federal Rule 506 of Regulation D (though the state may still require a notice filing and fee). The interplay of state exemptions and federal preemption means an issuer must analyze both systems to determine what filings, if any, are required in California.

The Antifraud Provision — § 25401

The law contains a robust antifraud provision. Section 25401 makes it unlawful to offer or sell (or buy) a security in California by means of a written or oral communication that includes an untrue statement of a material fact or omits a material fact necessary to make the statements not misleading. This state antifraud rule operates alongside the federal antifraud provisions and provides an independent basis for liability arising from misrepresentations in California securities transactions.

Rescission and Damages — § 25501

The remedies under the Corporate Securities Law are significant. Section 25501 generally allows a purchaser who bought a security in violation of § 25401 to rescind the transaction — recovering the consideration paid (with interest, less any income received) upon tender of the security — or to recover damages if they no longer own it. Separate provisions provide remedies for sales made in violation of the qualification requirement. Notably, the state law’s rescission remedy can be more plaintiff-friendly in some respects than federal remedies, which is why California securities claims are frequently pleaded alongside (or instead of) federal claims.

Who Can Be Liable

Liability under the Corporate Securities Law can extend beyond the issuer. The statute reaches those who materially assist or control the primary violator in defined circumstances, exposing officers, directors, and others involved in the offering to potential liability. Understanding the scope of potential defendants is important both for issuers structuring an offering and for investors seeking recovery.

Why State Law Matters Even When Federal Rules Are Met

An offering that complies with federal law is not automatically compliant in California. Unless a security is a covered security or a state exemption applies, the qualification requirement stands, and the state antifraud and rescission provisions apply to California transactions regardless of federal compliance. Overlooking the state layer is a common and costly mistake — an unqualified, non-exempt sale can give investors a rescission right, allowing them to unwind the investment and recover their money.

Why It Matters

For California issuers, the Corporate Securities Law means that capital-raising requires a two-part analysis: federal and state. For investors, it provides an additional, often powerful, set of remedies — including rescission — when securities are sold in violation of the qualification or antifraud provisions. In both roles, the state regime deserves the same attention as the federal one.

Frequently Asked Questions

What is the Corporate Securities Law of 1968?

California’s blue sky law (Corporations Code § 25000 et seq.), governing the offer and sale of securities in the state.

What does § 25110 require?

That offers and sales of securities in California be qualified with the DFPI unless exempt or preempted as a covered security.

Does federal compliance satisfy California law?

Not automatically — unless the security is a covered security or a state exemption applies, California’s qualification and antifraud rules still apply (though a notice filing may substitute for qualification for some covered securities).

What is § 25401?

The state antifraud provision, prohibiting the sale or purchase of securities by means of material misstatements or misleading omissions.

What remedies does § 25501 provide?

Generally rescission (recovering the consideration paid) or damages for violations of the antifraud provision, with separate remedies for qualification violations.

Who can be liable?

The issuer and, in defined circumstances, those who materially assist or control the violator, potentially including officers and directors.

Related Securities & Governance Guides

Talk to a California Securities Attorney

If you are raising capital in California — or invested in an offering that may not have been qualified — the state Corporate Securities Law matters as much as federal law. Trembach Law Firm advises California issuers and investors. Call (818) 514-7680.

Contact Trembach Law Firm at (818) 514-7680 for a confidential consultation.

Trembach Law Firm | 27001 Agoura Road, Suite 350, Calabasas, CA 91301