Key Takeaways

  • A securities license in California is required for most individuals or entities involved in selling, offering, or brokering securities transactions.
  • Real estate brokers can engage in securities transactions in limited cases if they meet specific conditions outlined in Section 260.204.1 of the California Code of Regulations.
  • California provides specific exemptions for "finders"—individuals who introduce parties to a securities transaction but do not negotiate or advise on the deal.
  • Selling certain types of partnership or ownership interests may require a real estate or securities broker license, depending on the nature of the transaction.
  • The Department of Financial Protection and Innovation (DFPI) regulates broker-dealers, agents, and licensing requirements.

The California Securities Act went into effect on January 2, 1968. The law requires that all sales of securities in California be registered with the California Department of Business Oversight or be exempt from registration per Section 25102 of the California Corporations Code.

Overview of the California Securities Act

The securities law regulates any offers or sales from secondary sellers and issuers of securities in California. The purpose is to protect consumers in California from deceptive and fraudulent transactions that involve securities. The security law affects entrepreneurs in California who incorporate a business and will issue stock in the state. They are required to either register or be exempt.

Anyone who attempts to bypass the stipulations of the securities act runs the risk of facing criminal penalties. Securities fraud cases can be tried as a misdemeanor or as a felony in some cases. A person convicted of securities fraud can face substantial fines as well as imprisonment.

Criminal Actions Involving Securities Fraud

Securities fraud is a complicated area in California's criminal law when determining if a company or person will face criminal liability due to violating the state's securities laws.

  • The prosecution of a securities fraud case can take place in either federal or state court.
  • California's securities fraud laws require the prosecutor to show that the defendant intentionally violated the state's securities laws. This means that the defendant may have acted recklessly, intentionally, or deliberately.
  • The prosecutor will need to present information regarding the defendant's knowledge of securities regulations and laws to show willful conduct.
  • Prosecutors must also prove that the defendant participated in a fraudulent plan or scheme that affected the purchase, sale, or offer of securities. They may also show that the defendant either directly or indirectly permitted misleading or false statements to be released.
  • If the defendant deliberately withheld information that affected sales, offers, or purchases related to securities, this would be considered securities fraud.
  • Selling or offering securities for sale in a way that does not comply with the information stated in the qualification paperwork is grounds for securities fraud.
  • Misleading behavior in the sale or purchase of securities is fraud. The California Corporations Code considers engaging in certain activities for the sole purpose of giving a false or misleading impression to be fraud.
  • Securities may not be willfully traded in any way that manipulates the market.
  • Securities cannot be traded in a way where there is no actual change in ownership. Entering an order to buy or sell securities when you know of an impending offsetting order for the purpose of creating a misleading impression is securities fraud. These are examples of making a misleading or false impression.
  • A form of criminal law occurs when someone knowingly lies to another person to get them to buy or sell securities.
  • One of the best-known forms of securities is insider trading. This occurs when someone has information that is not public knowledge and uses that information to buy or sell securities.

Selling Unqualified Securities in California

Before selling or offering securities in California, you may need to "qualify" the securities. This is done through the California Department of Corporations. The process to qualify securities is extensive with lots of paperwork and information/disclosures about the company that will be issuing the securities.

In some situations, it is considered a fraudulent crime only if the person "willfully" sold securities without first complying with the qualification requirement. If, on the other hand, a person was acting in good faith and believed they were not violating the law, that person will not be held criminally liable.

Requirements to Sell Securities

The general rule is anyone in the role of selling securities must be a licensed broker. California law expands on this by not including a director, officer, individual in a lesser position, or someone performing similar functions. People in these positions may not receive compensation for transactions specifically related to sales or purchases of securities. They may only do so as long as it is as part of their salary, but it cannot be a commission.

Federal law is basically the same, noting that everyone must hold a broker's license. For offerings being sold in one state, the broker must be licensed in that state. If the offerings are being sold in multiple states, the broker must be licensed with the Securities and Exchange Commission as well.

Licensing for Securities Transactions in California

In California, obtaining a securities license is typically required for anyone engaged in the business of effecting transactions in securities. This includes broker-dealers and their agents, who must register with the California Department of Financial Protection and Innovation (DFPI), unless exempt.

The license ensures that the person or entity is authorized to facilitate the sale or purchase of securities within the state and complies with the California Corporate Securities Law of 1968.

Under California Code of Regulations § 260.204.1, a licensed real estate broker may be permitted to engage in certain securities transactions—such as offering or selling tenant-in-common (TIC) interests or fractionalized real estate investments—if the broker complies with strict conditions. These include:

  • The security must relate to real property transactions;
  • The broker must not receive any compensation beyond standard real estate commission;
  • The broker must not hold themselves out as a securities broker-dealer unless appropriately licensed;
  • The broker must only engage in isolated transactions, not as part of a general securities business.

Failure to meet these conditions may result in the need to obtain a full securities license or face enforcement actions.

Finder Exemptions and Regulatory Limits

California also recognizes a narrow exemption for "finders"—individuals who introduce potential investors to issuers but do not negotiate, advise, or sell securities. Under California Corporations Code Section 25206.1 and related administrative guidance, a finder is exempt from broker-dealer licensing if all of the following apply:

  • They do not handle customer funds or securities;
  • They are only paid a flat fee or a percentage based solely on the introduction, not the transaction’s success;
  • They do not participate in negotiations, structure the deal, or offer investment advice;
  • They make the required disclosures to both parties and obtain written acknowledgment.

This exemption is limited and highly scrutinized. Acting beyond the scope of a finder role—such as discussing terms or facilitating the transaction—may trigger licensing requirements.

Real Estate Broker Licenses and Securities Sales

Certain types of ownership interests—particularly in entities like real estate investment partnerships—may involve overlapping licensing requirements under both real estate and securities laws.

According to California Business and Professions Code § 10131.3, a real estate broker may be required to obtain a securities license if they are selling partnership interests or fractionalized interests in real estate that are deemed securities. While the sale of an entire property generally falls under real estate law, offering limited partnership interests or fractional investments may fall under the jurisdiction of securities regulation.

If a real estate broker receives compensation for soliciting or negotiating such transactions, they may need to be registered as a broker-dealer or agent under California securities law. Dual licensing may be necessary depending on the structure and scope of the offering.

Frequently Asked Questions

  1. Who needs a securities license in California?
    Anyone involved in the business of offering, selling, or brokering securities must obtain a securities license from the California DFPI unless exempt.
  2. Can a real estate broker sell securities in California?
    Yes, but only under limited conditions. The broker must comply with Section 260.204.1 and cannot act as a general securities broker without proper licensing.
  3. What is a “finder” in California securities law?
    A finder is someone who introduces investors to issuers but does not negotiate terms or offer investment advice. Qualified finders may be exempt from licensing.
  4. Are partnership interests considered securities?
    They can be, especially if they are investment-oriented, such as limited partnership interests or tenant-in-common arrangements. Selling them may require a securities license.
  5. How can I check if I need a securities license in California?
    You can review California Corporations Code Sections 25210, 25206, and related regulations, or consult an attorney to evaluate whether your activities require licensure.

If you need help with the California Securities Act, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.