California Securities Litigation in 2024

In many ways, California securities litigation in 2024 was more of the same ‒ albeit with an emphasis on the “more”. Difficult financing markets translated into a number of actions by disgruntled shareholders alleging false or misleading statements in connection with securities transactions and/or management breaches of fiduciary duty. At the same time, federal plaintiffs ‒ increasingly alert to important distinctions between federal and state securities laws ‒ often added state claims to their federal complaints to take advantage of those differences.

The US Supreme Court held in MacQuarie Infrastructure Corp v Moab Partners, Inc, 144 S Ct 885 (2024) that a failure to disclose information required by Item 303 of Regulation S-K does not provide a basis for a claim under Section 10(b) of the Securities Exchange Act and Rule 10b-5(b). It remains to be seen whether that ruling will significantly increase the barrier to shareholder actions in federal court.

Meanwhile, California corporations have continued to face a wave of litigation regarding cybersecurity breaches. And California cryptocurrency companies continue to find themselves in regulators’ crosshairs, as the courts provide conflicting opinions on whether the sale of digital assets constitutes securities under federal law.

Recent changes to California law raise the prospect of even more securities litigation in the future. By way of example, new California ESG disclosure rules ‒ set to take effect in 2026 ‒ have the potential to spawn a new wave of disclosure suits, akin to ones that the federal courts have been dealing with in recent years. Lawsuits were filed challenging California’s recently enacted climate and financial reporting laws. And the California courts’ adoption of Delaware’s Caremark doctrine may precipitate new cases asserting director nonfeasance.

In short, 2024 has been a busy year for securities litigators. The next few years are expected to be busier still.

California courts adopt Delaware’s Caremark standard of liability for directors asleep at the wheel

California courts often look to Delaware case law concerning corporate governance ‒ although it sometimes takes a while before they expressly endorse a particular Delaware doctrine. On 2 June 2023, the California Court of Appeal officially recognised Delaware’s Caremark doctrine.

Under In re Caremark Int’l Inc, 698 A.2d 959 (Del Ch 1996) (“Caremark”) and its progeny, directors may be found liable for breaches of fiduciary duty (even if they did not affirmatively undertake a deleterious action) where they have failed utterly to implement any reporting or information system or controls or ‒ having implemented such a system or controls ‒ consciously failed to monitor or oversee its operations, thus preventing them from being adequately informed of risks or problems. The Delaware courts have held that plaintiffs bringing a Caremark claim must plead and prove that the directors acted in bad faith, which is typically defined as an intentional dereliction of duty or conscious wrongdoing.

In Kanter v Reed, 92 Cal App 5th 191 (2023) (“Kanter”), the California Court of Appeal adopted the Caremark standard for directors of California corporations. The court held that the definitions of director liability under Section 204 of the California Corporations Code were substantively the same as their Delaware law corollaries and therefore applied the Caremark standard. In so doing, it noted that California courts have routinely relied “on corporate law developed in the State of Delaware, given that it is identical to California corporate law for all practical purposes”.

On the merits, the court held that the shareholder derivative plaintiffs before it had not adequately alleged a substantial likelihood of director liability under Caremark and thus had failed adequately to plead that a litigation demand on the board would have been futile. The California Supreme Court denied plaintiffs’ petition for review ‒ meaning that the decision, and Caremark, are now binding law in the Golden State.

Given that many corporations who operate in California are incorporated in Delaware, it is not surprising that ‒ a year after the Kanter decision was issued ‒ it has yet to be applied to a substantive California dispute. Indeed, just one California Court of Appeal decision has addressed Caremark since Kanter, and it did so under Delaware law.

Continued down rounds precipitate shareholder actions

As was the case in 2023, 2024 was a difficult year for technology start-ups in Silicon Valley. In addition to a reduction in overall deal volume year-on-year, 2024 has seen an uptick in “down round” financings ‒ whereby a company raises money at a pre-money valuation that is less than the post-money valuation of its financing ‒ in many technology sectors. By way of example, 33% of all Q1 financings were down rounds (the highest rate in the past five years) and 22% in Q2 were down rounds, which was also quite high compared to pre-2023 metrics.

In the authors’ experience, a difficult financing environment is often accompanied by more aggressive actions by investors, who may feel ‒ rightly or wrongly ‒ that they have not gotten their money’s worth from securities transactions. This can lead to an uptick in claims of securities fraud and corporate mismanagement/malfeasance alike.

Unsurprisingly, new securities class action lawsuits increased in the first half of 2024 compared to the second half of 2023 by almost 10%. Locally, the California Superior Courts encompassing Silicon Valley (Santa Clara County, San Mateo, and San Francisco County) saw new securities litigation filings against several prominent San Francisco Bay Area companies in 2024, including three actions brought under the Securities Act of 1933. Given the continuing challenges in the financing market, the pace of securities filings is expected to continue increasing in 2025.

Plaintiffs include state securities fraud claims in federal complaints

Historically, federal securities lawsuits have primarily involved only federal securities claims. However, 2024 saw a pattern of California federal plaintiffs strategically including California state securities claims alongside their federal counterparts.

Federal and state securities laws both generally prevent, inter alia, the use of false or misleading statements in connection with the purchase or sale of securities. The statutory schemes are not identical, however. By way of example, unlike under federal Section 10(b) of the Securities Exchange Act and Rule 10b-5, a claim under California Corporations Code Section 25501 does not require proof of reliance or scienter but does retain the common-law requirement of privity between the parties (Cal Amplifier Inc v RLI Ins Co, 94 Cal App 4th 102, 108-09 (2001); Apollo Capital Fund, LLC v Roth Capital Ptrs, LLC, 158 Cal App 4th 226, 253 (2007)). The investor need only establish the misrepresentation or failure to disclose was of a “material fact”. The seller’s intent or lack thereof, is irrelevant (Bowden v Robinson, 67 Cal App 3d 705, 712 (1977)).

The two jurisdictions’ secondary liability schemes have differences as well. Section 20(a) of the Securities Exchange Act, for instance, extends liability to “[e]very person who, directly or indirectly, controls any person” who commits a primary securities fraud violation. California Corporations Code Section 25504 similarly extends liability to “[e]very person who directly or indirectly controls a person” liable for a primary violation, but that is just the beginning of the statute; Section 25504 goes on to hold liable “every partner in a firm so liable, every principal executive officer or director of a corporation so liable” (and more).

These distinctions can make a difference as early as the pleadings stage. Outside (non-employee) directors, for example, sometimes persuade federal courts to dismiss securities fraud claims against them even when claims against one or more primary violators survive dismissal ‒ see In re Gupta Corp Sec Litig, 900 F Supp 1217, 1241 (ND Cal 1994) (“Two courts in this district have held that the mere fact that an outside director signed a group published document does not make the outside director liable for the contents of the document”). This is far more difficult under state law, where ‒ by definition ‒ control person liability extends to “every… director of a corporation so liable”. (There are other differences between federal and state law, even as to control person liability; California law tends to focus more on a defendant’s power to control a primary violator, as opposed to their actual exercise of such control.)

Presumably cognisant of these differences, California federal plaintiffs increasingly have been pairing their federal securities claims with California claims. By way of example, a review of 2024 year-to-date PACER (Public Access to Court Electronic Records) filings shows that approximately 20% of new actions filed in the Central District of California that assert federal securities claims also included California state securities claims. Without a change in the law, even more plaintiffs are expected to simultaneously plead federal and state securities claims in the future.

California continues to be a hotbed of litigation concerning cybersecurity breaches

On 16 May 2024, the SEC issued a release adopting amendments to Regulation S-P that require broker-dealers, registered investment companies, registered investment advisers, and registered transfer agents to adopt a written incident response programme so as to address unauthorised access to customer information, including procedures for notifying affected persons within 30 days (Regulation S-P: Privacy of Consumer Financial Information and Safeguarding Customer Information, 89 FR 47688-01). It is likely that, following these new regulations, there will be a new wave of enforcement actions and civil lawsuits. This would be a continuation of the upwards trend in securities actions relating to cybersecurity.

As the beating heart of the tech industry, it is not surprising that California continues to be the site of substantial cyber-related litigation. The following are some examples.

• The SEC settled charges against registered transfer agent Equiniti Trust Company LLC, formerly known as American Stock Transfer & Trust Company LLC, for failing to assure that client securities and funds were protected against theft or misuse. The SEC alleged that those failures led to the loss of more than USD6.6 million following two cyberintrusions. Equiniti Trust Company LLC agreed to pay a civil penalty of USD850,000. The SEC’s investigation was, not surprisingly, run from its San Francisco Regional Office.
• On 11 June 2024, Okta, Inc agreed to pay USD60 million to settle a securities class action lawsuit alleging Okta, Inc and its officers made false or misleading statements regarding a data breach that impacted hundreds of its clients. Okta, Inc had moved to dismiss the action and was partially successful, but the court held that the plaintiffs adequately alleged claims concerning statements made on earnings calls (In re Okta, Inc Sec Litig, 2023 WL 2749193 (ND Cal 21 March 2023).
• Zoom, Inc agreed to pay USD150 million to settle class action claims that it made false or misleading statements regarding its encryption of video calls and the sufficiency of its data privacy and security measures. Specifically, Zoom, Inc claimed it offered “robust security capabilities, including end-to-end encryption, secure login, administrative controls and role-based access controls” in a 2019 Registration Statement and Prospectus. The parties submitted an amended order preliminarily approving settlement to the Hon Judge Donato of the Northern District of California on 18 July 2024 (In re Zoom Sec Litig, Case No 3:20-cv-02353-JD (ND Cal).
• On 30 September 2024, the Hon Judge Thompson of the Northern District granted final approval of a settlement of securities claims against Alphabet, Inc, which requires the defendant to pay USD350 million. The plaintiff had alleged that Alphabet, Inc failed to disclose a security vulnerability that resulted in users’ data being accessible by third-party developers for more than three years (In re Alphabet, Inc Sec Litig, Case No 18-cv-06245-TLT (ND Cal).

New climate disclosure laws may lead to new disclosure claims

On 7 October 2023, California Governor Gavin Newsom signed two bills into law, which collectively will require thousands of companies doing business in California to disclose greenhouse gas emissions and climate-related financial information. These laws are being challenged in civil litigation pending in the US District Court for the Central District of California.

SB 253, the California Climate Corporate Data Accountability Act (CCDAA), applies both to private and public companies with total annual revenues exceeding USD1 billion and will require disclosures regarding several categories of greenhouse gas emissions, including those resulting indirectly from a company’s entire supply chain. SB 261, the Climate-Related Financial Risk Act (CRFRA), applies to companies with total annual revenues exceeding USD500 million and will require ‒ among other things ‒ companies doing business in California to prepare and submit biennial climate-financial risk reports. The first disclosures under the two bills will be required in 2026.

In Chamber of Commerce v California Air Resources Board, Case No 2:24-CV-00801 (CD Cal), a coalition of business interests led by the United States Chamber of Commerce seeks to enjoin enforcement of these laws on several grounds. First, plaintiffs contend that the laws violate the First Amendment of the US Constitution because they compel speech “untethered to any commercial purpose or transaction… for the explicit purpose of placing political and economic pressure on companies to “encourage” them to conform their behavior to the political wishes of the State” (Complaint at 04:18-21). Plaintiffs also argue that the laws violate the Dormant Commerce Clause of the US Constitution and are precluded by the federal Clean Air Act. At the time of writing, the parties’ dispositive motions are submitted and await the court’s ruling.

Meanwhile, on 27 September 2024, California Governor Gavin Newsom signed SB 219, which made a number of amendments to both SB 253 and SB 261. Most notably, SB 219 delays until 1 July 2025 the deadline for the California Air Resources Board (CARB) to implement regulations for SB 253. SB 219 also grants the CARB discretion with regard to setting disclosure deadlines for Scope 3 emissions, which the US Environmental Protection Agency describes as “the result of activities from assets not owned or controlled by the reporting organi[s]ation, but that the organi[s]ation indirectly affects in its value chain”. 

To the extent California’s laws survive challenge, they are expected to spawn new lawsuits by regulators and private plaintiffs alike. These actions may be divided into two categories, as follows.

• First, plaintiffs will allege that the company misstated or omitted material facts concerning climate-related risks, including potential regulation. This has already been seen at the federal level. By way of example, the SEC charged Vale SA (a publicly traded Brazil-based mining company) with making materially false and misleading statements about the safety of its dams prior to the 2019 collapse of a dam that killed 270 people. In March 2023, Vale SA agreed to settle the action by paying USD55.9 million in disgorgement, prejudgment interest, and penalty (SEC v Vale SA, Case No 22-cv-2405 (EDNY 28 April 2022)).

In a private securities class action, plaintiffs accused Exxon Mobil Corp of misleading investors about the company’s proxy carbon costs ‒ a toll that internalises the environmental, social and economic costs of emitting one metric tonne of carbon dioxide. Although the claim survived a motion to dismiss, the federal court denied a motion for class certification, holding that defendants had rebutted the presumption of reliance through evidence showing that there was no statistically significant negative market reaction to the alleged corrective disclosure (Ramirez v Exxon Mobil Corp, 2023 WL 545315 (ND Tex 21 August 2023)).

• The second category of lawsuits entail allegations that a company materially exaggerated its commitment to environmental standards and policies ‒ a policy sometimes called “greenwashing”. In October 2024, the SEC charged investment adviser WisdomTree Asset Management Inc (“WisdomTree”) with “making misstatements and for compliance failures relating to the execution of an investment strategy that was marketed as incorporating ESG factors”. Despite WisdomTree’s representations in prospectuses that three ESG-marketed exchange-traded funds would not invest in certain companies or activities, the SEC found that these funds invested in companies involved in activities such as coal mining, natural gas extraction, and retail sales of tobacco products. Without admitting or denying the SEC’s findings, WisdomTree agreed to a cease-and-desist order and censure and to pay a USD4 million civil penalty.

In September 2024, the SEC charged Keurig Dr Pepper Inc (“Keurig”) with making inaccurate statements regarding the recyclability of its K-Cup single-use beverage pods. In its annual reports issued in fiscal years 2019 and 2020, Keurig represented that its testing validated that with recycling facilities “validated that [K-Cup pods] can be effectively recycled”. This disclosure omitted, however, that “two of the largest recycling companies in the United States had expressed significant concerns to Keurig regarding the commercial feasibility of curbside recycling of K-Cup pods at that time and indicated that they did not presently intend to accept them for recycling”. Keurig agreed to a cease-and-desist order and to pay a civil penalty of USD1.5 million without admitting or denying the SEC’s findings.

In September 2023, the SEC charged DWS Investment Management Americas Inc (“DIMA”) (a subsidiary of Deutsche Bank AG) with making misstatements about its ESG investment process. Specifically, the SEC found that ‒ despite marketing itself as an ESG leader that adhered to specific policies for integrating ESG considerations into its investments ‒ “from August 2018 until late 2021, DIMA failed to adequately implement certain provisions of its global ESG integration policy as it had led clients and investors to believe it would”. Without admitting or denying the SEC’s findings, DIMA agreed to a cease-and-desist order, censure, and a USD19 million penalty in this ESG misstatements action.

The SEC has issued a rule requiring investment firms that use ESG terminology, such as “green” or “sustainable”, to invest at least 80% of their assets in accordance with the investment focus suggested by the name ‒ see Rel IC 35000 (20 September 2023). Relatedly, the SEC accused BNY Mellon Investment Advisers (“BNY Mellon”) of misrepresenting that all its investments had been subjected to an “ESG quality review”. Without admitting or denying the allegations, BNY Mellon agreed to pay a USD1.5 million penalty and take remedial actions (in the Matter of BNY Mellon Investment Adviser, Inc, Admin Proc File No 3-20867 (23 May 2022)). Similarly, in In re Oatley Group AB Sec Litig, 1:21 cv-06360-AKH, filed in the US District Court for the Southern District of New York, the plaintiff alleged ‒ among other things ‒that the company misrepresented its sustainability practices. (The charges subsequently were omitted from an amended complaint.)

Should the new California laws take effect, it is anticipated that shareholder plaintiffs will file similar actions in California courts, challenging company ESG disclosures.

On 6 March 2024, the SEC adopted final rules requiring public companies to disclose “more consistent, comparable, and reliable information about the financial effects of climate-related risks on a registrant’s operations and how it manages those risks while balancing concerns about mitigating the associated costs of the rules”. Registrants would be required to disclose, among other things, “climate-related risks that have had or are reasonably likely to have a material impact on the registrant’s business strategy, results of operations, or financial condition” and “registrant’s activities, if any, to mitigate or adapt to a material climate-related risk including the use, if any, of transition plans, scenario analysis, or internal carbon prices”. Less than a month later, however, the SEC issued an order staying implementation of these rules pending completion of a judicial review of petitions consolidated before the US Court of Appeals for the Eighth Circuit.

In addition to the litigation pending in the above-mentioned Chamber of Commerce action, the California rules might be challenged as superseded by the SEC rules should they survive judicial review. Unless and until that happened, however, they likely would give investor plaintiffs fodder for new disclosure claims.

AI washing leads to securities claims

On 25 January 2024, the SEC issued an “Artificial Intelligence (AI) and Investment Fraud: Investor Alert” to make investors aware of the increase of investment frauds involving the use of AI. Indicative of their heightened alertness for scams involving AI claims, on 18 March 2024, the SEC announced they had settled enforcement actions against two investment advisers ‒ Delphia (USA) Inc (“Delphia”) and Global Predictions Inc (“Global Productions”) ‒ for making false and misleading statements about their use of AI. This practice is often referred to as “AI washing”.

According to the SEC’s Order Instituting Administrative and Cease-and-Desist Proceedings in the Matter of Delphia (USA) Inc (the “Delphia Order”), from 2019 to 2023, Toronto-based firm Delphia made false and misleading statements in its SEC filings, press releases, and website regarding its purported use of AI and machine learning that incorporated client data in its investment process (Order, In the Matter of Delphia (USA) Inc, Admin Proc File No 3-21894). The SEC took issue with Delphia’s statement that it “put[s] collective data to work to make our artificial intelligence smarter so it can predict which companies and trends are about to make it big and invest in them before everyone else”. The SEC found that these statements were false and misleading because Delphia did not actually possess the AI and machine learning capabilities that it claimed to possess. Additionally, the firm was charged with violating the SEC’s Marketing Rule, which prohibits registered investment advisers from disseminating advertisements that include untrue statements of material fact.

The SEC, in the Order Instituting Administrative and Cease-and-Desist Proceedings in the Matter of Global Predictions, Inc (the “Global Predictions Order”), found that San Francisco-based firm Global Predictions made false and misleading claims in 2023 on its website and social media about its use of AI (Order, In the Matter of Global Predictions, Inc, Admin Proc No 3-21895). According to the SEC, the firm falsely claimed to be the “first regulated AI financial advis[e]r” and misrepresented that its platform provided “[e]xpert AI-driven forecasts”. Global Predictions also violated the Marketing Rule by falsely claiming that it offered tax-loss harvesting services and including an impermissible liability hedge clause (a type of clause that, generally, allows a party to limit their potential exposure to liabilities and losses) in its advisory contract, among other securities law violations.

Without admitting or denying the SEC’s allegations, both Delphia and Global Predictions consented to entry of the Delphia Order and the Global Predictions Order respectively, finding that they violated the Investment Advisers Act and ordering them to be censured and imposing a cease-and-desist order from violating the charged provisions. Delphia agreed to pay a civil penalty of USD225,000 and Global Predictions agreed to pay a civil penalty of USD175,000.

On 11 June 2024, the SEC announced it had charged Ilit Raz ‒ the CEO and founder of the AI recruitment start-up Joonko Diversity Inc (“Joonko”) ‒ with defrauding investors of at least USD21 million by making false and misleading statements about the company’s use of AI (Complaint, Sec Exch Comm’n v Raz, No 1:24-CV-04466, 4–5).The SEC’s complaint alleges that Raz falsely told potential investors that the company used AI to help clients find diverse and under-represented candidates to fulfil their DEI hiring goals. Specifically, marketing materials provided to potential investors claimed that Joonko’s technology was based on “seven different AI algorithms” and provided an “automated recruiting solution”.

In a public interview posted on the website “Unite AI”, Raz also boasted that the matching of candidates by Joonko was “automated from end to end”. According to the allegations in the complaint, Joonko’s platform did not have any of these capabilities. The SEC’s enforcement action against Ilit Raz marks the first time it has alleged AI washing in connection with statements made to private investors.

Cryptocurrency continues to be targeted

Cryptocurrency companies have been a favourite target of the SEC in recent years, which makes California a fertile hunting ground. The typical SEC action alleges that the defendant company engaged in distribution of digital assets (or tokens) that were securities and that the offer and sale of the assets was therefore in violation of Sections 5(a) and (c) of the Securities Act of 1933. Those provisions require securities being offered for sale and/or sold to be registered with the SEC unless there is an applicable exemption. The SEC’s position is that the digital assets being sold are an investment contract ‒ a form of security ‒ under the US Supreme Court’s decision in SEC v WJ Howey, Co, 328 US 293 (1946) and various SEC pronouncements.

The relief sought by the SEC varies. In some cases, the SEC will demand that the company register the digital assets with the SEC. In other instances, the SEC demands that the company take control of the tokens that have been distributed and/or halt the secondary trading of the tokens on all trading platforms. In further cases still, the SEC has alleged that the defendants engaged in fraudulent practices in violation of Section 17(a) of the Securities Act of 1934 and Section 10(b) of the Securities Exchange Act of 1934. The actions sometimes are accompanied by disgorgement and penalties as well.

One 2023 case that attracted a great deal of attention was the SEC’s action against San Francisco-based Ripple Labs, Inc (“Ripple”) and its senior officers, Bradley Garlinghouse and Christian A Larsen. The action, filed in the Southern District of New York, alleged that the defendants sold more than 14.6 billion units of digital asset “XRP” in return for cash consideration worth more than USD1.38 billion. The SEC asserted that XRP was a security that should have been registered with the SEC.

On 13 July 2023, Judge Analisa Torres held that the corporation’s sales of XRP to institutional investors constituted investment contracts and violated Section 5 of the Securities Act. However, the court also held that the company’s programmatic sales of XRP to public buyers on digital asset exchanges did not constitute investment contracts, as they did not lead those buyers to have a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others. For the same reason, the sales of XRP by Garlinghouse and Larsen could not be considered investment contracts. The SEC has appealed aspects of the Ripple decision.

However, in late 2023, Judge Rakoff in the Southern District disagreed with Judge Torres and held that various cryptocurrency tokens sold by Terraform Labs (“Terraform”) were securities because token purchasers had a reasonable expectation of profit based on Terraform’s development of the Terraform blockchain system (SEC v Terraform Labs Pte Ltd, 708 F Supp 3d 450 (SDNY 2023). In June 2024, the SEC announced that Terraform and its founder, Do Kwon, agreed to pay USD4.5 billion following a jury verdict holding them liable for orchestrating a years-long fraud that resulted in substantial investor losses.

Separately, the US District Court for the Northern District of California ruled on a motion for summary judgment in In re Ripple Labs, Inc Litig, 2024 WL 3074370 (ND Cal 20 June 2024). The plaintiff brought shareholder class claims under Sections 12(a)(1) and 15 of the Securities Act of 1933 and California Corporations Code Sections 25503 and 25504. He also brought claims in his individual capacity for violations of California Corporations Code Section 25501 and 25504.1. Judge Phyllis Hamilton dismissed the federal claims as time-barred and the Section 25503 claim for lack of privity. All that remained was a claim based on a single alleged misstatement by Ripple’s CEO Garlinghouse. But Judge Hamilton rejected the analysis of Judge Torres, holding that she declined as a matter of law to hold that a reasonable investor would have expected a profit because of market trends rather than Ripple’s own promotional efforts.

In SEC v Coinbase, Inc, 2024 WL 1304037 (SDNY 27 March 2024), the court ‒ on a motion for judgment on the pleadings ‒ held that the SEC had plausibly alleged that Coinbase operated as an unregistered intermediary of securities and therefore could be liable for failing to register as national securities exchange, broker and clearing agency. A cryptocurrency exchange has sued the SEC, asserting that it lacks jurisdiction over the secondary sale of tokens (Foris DAX Inc, v SEC, Case No 6:24-cv-00373 (ED Tex 8 October 2024).

Other California-based cryptocurrency companies that were the subject of SEC actions in 2023 include the following.

• In SEC v Vy Pham, filed in the District of Massachusetts on 9 October 2024, the SEC alleged that the defendant (a resident of Los Angeles) participated in the offer and sale of Saitama, a crypto-asset that was offered and sold as a security. The SEC asserted that Pham and others manipulated the price and trading volume for Saitama in order to create the illusion of growing market interest. The SEC also alleged that Pham subsequently marketed another crypto-asset called the Robu Inu Finance Token while promising investors that she would develop an “ecosystem” to increase the value. The SEC charged Pham with failing to register the crypto-assets as securities and fraud.
• SEC v Mango Labs LLC et al, filed on 27 September 2024 in the Southern District of New York against a crypto-asset trading platform that had been based in California, alleged that the defendants raised more than USD70 million through the unregistered offer and sale of crypto-assets to hundreds of investors worldwide.
• In SEC v Nonobit Limited et al, filed in the US District Court for the Eastern District of New York, the SEC alleged that one of the corporate defendants ‒ Radiant Horizons Limited, a California company ‒ and two individuals residing in California were part of a scheme to delude investors into believing that they were trading crypto-assets and making profits.
• In re Matter of Impact Theory, LLC, Admin Proc File No 3-21585 (8 August 2023) was a settled proceeding in which the SEC alleged that Impact Theory LLC, a Los Angeles-based media and entertainment company, offered and sold crypto-asset securities in the form of non-fungible tokens (NFTs), raising USD29.9 million worth of ether (ETH). Without admitting or denying the allegations, the company agreed to disgorge USD5.12 million, prejudgment interest of USD483,195.90, and a civil monetary penalty of USD500,000. The company also agreed to destroy all the NFTs in its possession and to take measures to eliminate any royalties that Impact Theory LLC might receive from secondary market transactions of the NFTs.

California state authorities also have been active in the cryptocurrency sphere. In February 2024, the California Department of Financial Protection and Innovation (DFPI) announced that it had entered into a consent order with TradeStation Crypto, Inc (“TradeStation”), to resolve the DFPI’s investigation into TradeStation’s cryptocurrency interest-earning programme. As the co-lead of a multi-state investigation, the DFPI negotiated a USD1.5 million settlement with TradeStation.

Further, in October 2023, Governor Newsom signed into law California’s Digital Finance Assets Law, which is a comprehensive effort to regulate the digital asset market. Effective as of July 2025, the law would require businesses ‒ unless exempted ‒ to obtain a licence and comply with disclosure and record-keeping requirements in order to engage or hold themselves out as engaging in:

• digital financial asset activity with or on behalf of a California resident;
• issuing shares or electronic certificates representing interests in precious metals; or
• providing representations of value used within one or more online games, game platforms or family/ies of games for ‒ among other things ‒ the legal tender or bank credit outside the game.